Bank accounts with overdrafts

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Need a low-cost overdraft on your current account? Costs vary widely so compare accounts to make sure you’re getting the best deal

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Overdraft guide

What is an overdraft?

An overdraft is a current account feature that allows you to spend more than you have in your account, effectively by borrowing it from your bank.

It can be useful if you run out of cash as a result of an unexpected bill, for example.

In most cases, however, you will pay interest and/or fees on the amount borrowed. These charges get much stiffer if you go overdrawn without authorisation.

How do overdrafts work?

Most current accounts offer overdraft facilities that allow your balance to drop below £0.

Some accounts offer interest-free overdraft buffers of up to £250. Others offer new customers a short-term 0% overdraft. Others impose a daily fee of, say, £1, and many banks charge interest on the full overdraft amount.

Generally, however, you will pay set interest and/or fees on overdrafts up to an agreed amount, and more if you exceed that.

This will change in April 2020, when new laws force banks to charge the same for authorised and unauthorised overdrafts.

How people use their overdraft

According to a survey of 1,962 internet users by Mintel research in July 2019

Will the bank give me an overdraft?

Most current accounts offer overdraft facilities, but not all customers automatically qualify for an overdraft.

Even if you do, you may be offered a lower limit than you hoped. When you request an overdraft, your account provider will check your payment history and your other outstanding borrowing.

If you have lots of debts or a poor credit record, you may therefore struggle to qualify.

How should I choose an overdraft current account?

If you regularly go into the red, you need a current account that offers a cheap overdraft.

This could come in the form of an interest-free overdraft buffer, a 0% overdraft for new customers, low standard overdraft rates or a cap on monthly fees.

The best account for you will depend on the size of your overdraft and how long it takes you to clear.

Can you get a free overdraft?

Free overdrafts do exist. Student current accounts, for example, often offer overdraft facilities with no fees or interest charges.

Some standard current accounts also offer free overdrafts up to say £250.

And when you switch accounts, some banks offer a free overdraft for a certain time, after which standard charges apply.

What happens if you go over your overdraft limit?

You may be charged up to £5 a day if you go into the red without permission or exceed your overdraft limit, and there will be extra fees for any unpaid direct debits or cheques.

These can reach £35 for each transaction processed.

Can you get an overdraft on any current account?

Yes, most current accounts offer overdraft facilities that allow your balance to drop below £0.

Even if you don’t normally need an overdraft, you will probably be offered one when you switch current accounts so as to shield you from any defaults and unauthorised overdraft charges during the switching process.

Basic bank accounts aimed at those on low incomes are the main exception – they will generally not allow you to go overdrawn.

On other accounts, overdraft fees and interest charges can vary widely.

What happens when a current account is overdrawn?

Some current accounts offer interest-free overdraft buffers – ranging from about £20 to £250 – which can be great if you only go overdrawn by a small amount.

However, if you go into the red by more than that you will generally have to pay handsomely for the privilege.

Some banks impose a daily fee of 50p or £1, while others charge interest on the full overdraft amount.

What are the alternatives to an overdraft?

Alternatives to an overdraft include:

Comparing overdrafts

MoneySuperMarket’s current account comparison tool lets you compare overdraft offers from a range of banks and building societies.

Save money by finding the right overdraft account for you today.