Millions of current account holders falsely believe that they are unable to switch banks if they are in the red, according to new research.

The BMRB survey for Alliance & Leicester shows that 42 per cent of Britain’s current account holders (17.5 million people) are under the impression that they must stay with their current bank if they are overdrawn.

Some banks and building societies can charge up to 18 per cent for authorised overdrafts. If current account holders sought better deals on their account they could save more than £190 million a year.

The survey results show that 45 per cent of all current account holders use their overdraft facility and 39 per cent are currently in the red.

A massive third (32 per cent) of those who use their overdraft have no idea how much they are charged and a further 36 per cent believe they pay less than 7.5 per cent.

However, authorised overdrafts can cost up to 17.8 per cent EAR and unauthorised rates up to 33.8 per cent EAR. It is therefore worrying to learn that the majority of customers have little idea how much their overdraft facility costs them.

Customers are advised to shop around for better deals on their current account. If the account is likely to remain overdrawn or fluctuate regularly then it is best to look for a current account that offers a competitive rate on overdraft facilities.

Simon Ripton, Manager of Current Accounts at Alliance & Leicester commented: “As our research shows, despite many people using their overdraft facility to manage the ups and downs in their finances, they are needlessly paying higher rates of interest.

‘Unlike mortgages, loans and credit cards, people do not shop around for the best deals on their current accounts and people wrongly think that they are locked into their current account if they are overdrawn and this is costing them dear.’