Authorised overdraft
An authorised (or arranged) overdraft is arranged with your bank, and usually comes with an agreed borrowing limit – this can be anywhere from £250 to £3,000. There may be a small arrangement fee.
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Accurate as of Thursday, 12 September 2024
Student 16-25 Railcard
Santander Edge Student current account
Switch Incentive
Arranged overdraft
Yes (subject to eligibility)
Account fees
None
Rewards and other perks
Get cashback, vouchers, prize draws and other personalised offers
5% interest on balances up to £500
Student Account
Switch Incentive
Arranged overdraft
Yes (subject to eligibility)
Account fees
None
Rewards and other perks
Receive 5% AER/4.89% gross variable
In credit interest + interest free arranged overdraft
FlexDirect Current Account
Switch Incentive
Arranged overdraft
Yes (subject to eligibility)
Account fees
None
Rewards and other perks
Access to member-only products
This is a preview of the top three current accounts sorted by overdraft. For a full breakdown of all our current accounts, including alternative current account types, progress to the results table.
An overdraft is a way of borrowing from your bank to spend more than you have in your current account. They can be useful to manage your finances, but could also prove expensive if used poorly.
You’ll go into your overdraft if you make a purchase or withdraw cash that takes you ‘below zero’ or in debit on the account. Depending on the type of current account you have, you may have to pay interest on the overdraft.
Some student current accounts come with an interest-free overdraft for several years, for example.
Interest-free: Interest-free overdrafts work like an interest-free loan, and you won’t face any charges for this borrowing. Some accounts offer an interest-free buffer on an agreed overdraft, usually up to £250, before implementing interest charges. Others, such as student or graduate bank accounts, might offer an interest-free agreed overdraft of up to £2,000
Agreed interest: If you’ve exhausted your bank balance and interest-free buffer (if you have one), your bank is likely to start charging you for using your overdraft at a set interest rate. In most cases, it will be interest charged on the amount you’ve borrowed over your interest-free limit.
Overdrafts are fairly simple to understand. The key points are as follows:
There are two types of overdraft: authorised and unauthorised (also known as an unarranged overdraft). An authorised overdraft is where the bank has provided a specific facility for you to go overdrawn in your current account. This does not always mean it’s interest-free
Banks can only charge you an annual interest rate for both unarranged and arranged overdrafts, meaning you won't pay any additional fees or overdraft charges
But interest rates on overdrafts from banks and building societies can be high, ranging from 19% to 40% or more
Entering an unarranged overdraft can negatively impact your credit score. So if you're looking to borrow money, apply for an arranged overdraft
If you don’t repay what you owe on time, you run the risk of damaging your credit score or building up significant debts
For student current accounts your overdraft is likely to be interest-free and you’ll be expected to pay it back within two to three years of graduating
An authorised (or arranged) overdraft is arranged with your bank, and usually comes with an agreed borrowing limit – this can be anywhere from £250 to £3,000. There may be a small arrangement fee.
An unauthorised overdraft (or unarranged overdraft) is borrowing you haven’t agreed with your bank. You’ll go into an unauthorised overdraft if you go over your authorised overdraft limit or if you overspend when you don’t have an agreed overdraft with the bank.
Flexibility: Unlike a loan, where you’ll borrow a set amount and repay over a fixed period, an overdraft gives you a way to borrow the exact amount you need immediately and repay when it suits you. It can also act as a handy financial safety net.
No early repayment charge: You shouldn’t be charged a fee for paying back any amount of your overdraft at any time
Quick to apply for: There’ll be less paperwork than applying for a loan – often you’ll get an overdraft automatically with your current account application
Less money to borrow: The amount of money you can access through your overdraft tends to be lower than with a personal loan
Interest charges: The interest charged on overdrafts can be high, which can make it an expensive way to borrow long term
Over-spending: Spending is coming out of your current account so if you don't keep an eye on your debit card use you could end up with a large overdraft that's hard to pay off (most banks will send text alerts if you're close to your overdraft limit)
Take a deep dive through your finances and think about what you could cut back on before you go overdrawn
Arrange a text alert with your bank when your balance drops below a certain amount. This can warn you you’re approaching your overdraft
If you’re aware you could enter into your unauthorised overdraft let your bank know. They might be able to extend your existing limit
Consider setting up and regularly topping up an easy access savings account which could be used to clear an overdraft in an emergency situation
Using your overdraft could affect your credit rating and eligibility for other forms of credit because lenders look at any outstanding debts when making lending decisions.
Your credit score is more likely to be negatively affected if you use an unauthorised overdraft or go beyond your agreed overdraft limit because lenders are likely to see you as managing credit poorly.
If you have an arranged overdraft but don’t use it (or use it occasionally but clear it quickly) this shouldn’t affect your credit score.
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Use your savings: If you have money set aside in a savings account it could make better sense financially to use some of it to clear your overdraft, particularly if you’re paying high interest on your borrowing
Transfer the balance: If your interest rate is high, you could use a money-transfer credit card to clear the debt built up in your overdraft. You may get a 0% interest period for 18 months in some instances
Switch providers: If you switch to a new bank, you could be offered an interest-free period on your overdraft for a set amount of time. This could help you avoid interest building up while you’re paying off your overdraft balance
Take out a loan: A low-rate personal loan could make paying off your overdraft more affordable, especially if the loan comes with a low-interest rate
You may be able to switch banks if you’re currently overdrawn, but your existing overdraft will need to be agreed with your proposed new bank or building society before the switch. If your new bank won’t offer you an overdraft up to the amount you are already overdrawn, you’ll have to repay what you owe before switching.
An overdraft should only be seen as a way of managing your finances in the short term. If this is the case and you need more money than you currently have in your current account, then it might be right for you. It’s easier and quicker to set up an overdraft than a loan or credit card and by definition you’ll only borrow the exact amount you need. However, always make sure it is authorised by your bank first and understand the interest charges you face, as they can be more expensive than other ways of borrowing.
To open a bank account, you’ll usually need the following information to hand:
Personal information: Usually your full name, nationality, contact details, date of birth and national insurance number
Proof of address: A recent utility bill, mortgage statement or tenancy agreement, bank statement or council tax bill
Proof of identity: Such as your passport or driving licence. If you’re opening a children’s account or student account, your bank may accept a birth certificate as proof of identity
Whether you can get an interest-free overdraft will depend on your bank or building society and their view of you as a customer. For example, students are often given interest-free overdrafts as an incentive to sign up as new customers when they are young.
Customers with a better credit score are more likely to be offered an interest-free overdraft too because they are seen as a lower risk of not repaying what they owe. It’s worth noting that because all interest-free overdrafts are given at the account provider’s discretion, they can also remove them at short notice. The bank should always give you warning and a chance to repay what you owe, but it’s another reason why overdrafts shouldn’t be seen as a way of long term borrowing.
It’s a good idea to check your account statements regularly, because this could stop you going into your overdraft without knowing. It can also be a good way to double check whether there are any transactions you don’t recognise.
Look for a provider with good customer service, because you never know when you’ll need to call them up or go into a branch to fix an issue.
Remember to be careful with your PIN and account details; you should keep this information safe and protected. Remember, your bank will never ask you to reveal details like your PIN, either on the phone, in person or through an email.
Your bank will almost certainly have an app that lets you manage your account online, and some may even be based on their app. This is excellent for quick and easy money management.
Each bank has different ways of transferring money. Some require you to use a card reader when transferring any sum of money, while others only use it for transactions over a set amount.
Other banks do not use card readers at all, so if money transfers are something you might be doing a lot of, it’s worth checking the policy details to see how easy it is to make payments on the go.
If your current account comes with benefits such as air miles, you might want to check whether you really need them. For example, if you’re not a frequent flyer, is an air miles bonus worth the extra cost of the monthly fee? The same goes for any other attached benefits such as travel insurance.
