More leeway on overdrafts

Banks have promised to give customers more leeway when they slip into overdraft, in response to a government review of consumer credit.

From next April, all current account holders with leading High Street banks will have the option of a receiving an alert by text, phone or email if they get close to becoming overdrawn.

A year after that they will benefit from a buffer zone of £5 to £10 beyond their overdraft limits. They won't incur zone charges if they stray into the buffer zone for a short period.

And they will be warned at what time of day charges will be imposed, giving them time to top up their accounts to avoid having to pay a penalty.

The new commitments apply to 85% of current account customers who use the top five banks But smaller banks expected are expected to follow suit when they can.

As part of the review, ministers have ruled out imposing a cap on interest rates for credit and store cards.

But retailers have agreed to stop tempting customers into expensive credit by offering discounts on purchases at the time they take out a store card.

Small traders try to get out of the red

Britain's 4 million small traders have been paying off debt and overdrafts in a desperate attempt to ride out the economic storm.

As they put a hold on recruitment and spending, they have managed to pay back £889m of the overdrafts since July last year.

The outstanding overdraft total for smaller businesses reported by the British Bankers Association stood at just under £7.6bn at the end of last year, a fall of £1.2bn from the year before.

Meanwhile, traders have been building up their cash reserves, like any household battening down the hatches.

Their cash in current and deposit accounts totalled £59bn, a new record and well above their outstanding lending of £52bn.

Banks are under pressure to provide more funds to small business. They did lend £6.5bn last year, but that was more than offset by repayments and debt write-offs of £9bn.