Why £300 overdrafts can cost between 78p and £78 in charges Even if you only dip into the red occasionally, such charges can easily wipe out any interest you've earned by staying in credit the rest of the year. A survey by Consumer Intelligence showed that more than four in 10 bank customers used their overdraft. Of these, 20pc said they only used it occasionally, but 6pc said they were overdrawn "most of the time." When you select a current account, be honest and take into account your borrowing patterns. Below we take a look at the main types of overdraft charges that are imposed by the different banks. Interest-free buffers These buffers have reduced significantly in recent years, with most banks now offering a slim £10 margin before charges are imposed. However, First Direct still offers an interest-free £250 overdraft. If you rarely borrow more, this could be a cost-effective option. However, you will need to deposit at least £1,000 a month to qualify. Fees vs interest rates The main option is whether to pay a daily fee, or get charged an interest rate. Fees are more transparent, but they are rarely the cheapest option for those with modest overdrafts. Santander and Halifax charge a daily £1 overdraft fee. Santander caps this charge at £20 a month; Halifax has no cap and will double the fee if your overdraft exceeds £2,000. By contrast, Barclays charges interest at 19.3pc, and HSBC at 19.9pc. Andrew Hagger, personal finance expert at Moneycomms, said: "The £1 fee is the same whether you are borrowing £50, £500 or £1,500 - so clearly becomes better value for money for those who have larger overdrafts. Paying an interest rate of almost 20pc may not sound particularly good value. But if you are borrowing less than £1,825 for just a few days each month, then this is likely to work out cheaper. To put it another way, paying a £1 fee on a £500 overdraft is equivalent to paying interest at 73pc. Some banks charge a monthly fee and impose an interest rate. The interest rate charges are still around the 19pc mark, so aren't as competitive as either HSBC or Barclays. However, if you are overdrawn for most of the month a £6 month fee (plus some interest) is likely to be cheaper than a daily fee. Unauthorised overdrafts Wherever you bank, the simplest way to cut overdraft costs is to stick to agreed limits. All banks impose a raft of additional charges if you exceed your overdraft limit or borrow without first getting an overdraft facility authorised. Most banks charge an unauthorised borrowing fee: Halifax, Santander and Lloyds levy a £5 daily fee (Lloyds doubles this if your unauthorised overdraft is more than £25); Natwest levies a £6 daily charge; Barclays charges a "personal reserve fee" of £22 (though only if you exceed your limit for five days) and HSBC and First Direct hit customers with a £25 charge each time their unauthorised balance increases. There may also be "unpaid item" fees to pay. Most bank charge between £10 and £25 each time they bounce a debit card payment, or cheque, because there are insufficient funds in the account. Some banks will also impose a similar "paid item" fee if they clear this payment but it pushes your account beyond agreed limits. The simplest way to avoid these additional costs is to contact your bank as you are nearing your overdraft limit. You may be able to extend this facility for minimal cost. Most banks now offer mobile banking services, where you can get a text, or an email, warning you are nearing your overdraft limit. Loans For those who are in the red more often than they are in the black it may be worth considering a personal loan instead to clear your overdraft on a more permanent basis. Mr Hagger explained: "A £3,000 overdraft with Halifax will cost £3 a day - that's £90 a month or £450 over six months." Even if you don't qualify for one of the better-priced loan deals, where rates are below 5pc in some cases, customers paying a rate of 12.6pc would still pay interest charges of just £583 over three years - significantly less than the overdraft charges you would incur over this period. Tomorrow in our 7-day switch mini-series Rosie Murray-West looks at the evolution of banking before looking to its high-tech future.