Most of us dip into the red from time to time, particularly in the run-up to Christmas when there are so many demands on our money.

But it's not always easy to work out the cost of an overdraft.

Banks and building societies charge for overdrafts in different ways. For example, some levy a flat fee; others charge interest. The different charging structures often confuse customers. They also make it difficult to compare costs.

Andrew Hagger, founder of financial researcher Moneycomms.co.uk, says: "The main bugbear for customers is that banks use a wide range of different charging tariffs, so shopping around to find the cheapest deal is a nightmare."

The number of people moving their accounts has gone up since a speedier switching process was introduced a year ago. But the big four banks - Barclays, HSBC, Lloyds and RBS - retain their stranglehold on the sector, with 77 per cent of the current account market, and the Competition and Markets Authority is set to investigate.

Some accounts offer a so-called fee-free buffer, which allows you to slip into the red without charge. You can therefore avoid a hefty fee for a minor transgression. The buffer is often small - sometimes as little as £10. But First Direct offers an interest-free buffer of £250.

Many banks charge interest on overdrafts, but the rates can be high, often up to 20 per cent on authorised borrowing. An overdraft is not therefore suitable if you want to borrow a large amount over a long period. It should be a short-term stop gap, perhaps to tide you over for a few days. Some banks and building societies have introduced flat fees for overdrafts. So, your bank might charge a daily fee of £1. Some also tier the fees according to the size of the overdraft. For example, Barclays charges 75p a day up to £1,000, £1.50 a day up to £2,000 and £3 a day for more than £2,000.

Mr Hagger says: "Providers claim that daily fees are easier to understand and more transparent. The trouble is they tend to be very expensive for people borrowing smaller sums."

The fees are usually the same for both agreed and unagreed overdrafts, but it's important to check the small print.

Clydesdale Bank, First Direct and M&S Bank top the Moneycomms table for best-buy authorised overdrafts.

Clydesdale Bank, for example, charges interest of 9.9 per cent on its Current Account Direct, though it does not offer a fee- free buffer.

You must manage the account online or by phone and pay in at least £1,000 a month.

The bank will also give you £150 in cash if you switch your current account to Clydesdale or Yorkshire Banks using the Current Account Switch Service.

First Direct and M&S Bank also offer switching incentives. Plus, they score highly on customer satisfaction ratings.

Nationwide building society's FlexDirect is also rated highly. However, it charges a daily fee of 50p so it can work out expensive if you borrow only small amounts. If you ran up an overdraft of £400 for four days a month you would pay £24 in annual charges. The total annual cost with Clydesdale Bank would be £5.21. A bigger overdraft of £2,000 for 12 days a month would be cheaper with Nationwide at £72, compared with £78.11 with Clydesdale.

Always agree an overdraft with your bank as the charges for unauthorised borrowing are punishing. Interest rates can top 30 per cent. Plus there is often a fee for unauthorised borrowing, as well as charges for unpaid transactions, such as bounced cheques.