However, while many current accounts now offer rewards for those who stay in the black, if you slip into the red, you could end up paying the price. Overdraft fees can be extortionate, which is why it’s important to seek out a current account that won’t charge you the earth for going into the red. So let’s take a look at some of your options.
If you’re determined to get out of the red once and for all but need a little help, some current accounts offer an interest-free/fee-free overdraft for a number of months.
For example, both the Santander Everyday current account and the Santander 123 current account offer a fee-free overdraft for four months. Use that time wisely to clear your overdraft debt because if you don’t, you’ll pay £1 for each day you’re in the red, capped at 20 days per month.
With the 123 current account you will have to pay a £2 monthly fee and fund the account with £500 or more a month. But in return, you’ll earn cashback on some of the direct debits that leave your account. You’ll earn 1.00% cashback on water, council tax bills and Santander mortgage payments, 2.00% on gas and electricity bills, and 3.00% on mobile phone, home phone, broadband and paid-for TV packages.
What’s more, if you do manage to get back into the black, you’ll be able to earn interest on your in-credit balance. You’ll earn an annual rate of 1.00% on balances over £1,000, 2.00% on balances over £2,000 and 3.00% on balances between £3,000 and £20,000.
Alternatively, the Nationwide FlexDirect current account offers a longer 12-month fee-free overdraft. After this time you’ll pay 50p per day for using your overdraft. There is no monthly fee on the account but you will need to pay £1,000 or more into the account each month. If you successfully get back into the black within those 12 months you’ll also be able to earn 5.00% interest on balances up to £2,500. This rate is valid for 12 months from opening the account.
Should you need longer to tackle your overdraft, the First Direct 1st Account offers a continuous £250 interest-free overdraft. Go over this though and you'll be charged 15.9% EAR.
When you switch to the 1st Account, you’ll receive £100 for your efforts. First Direct is also renowned for its good customer service, so that might be another incentive for you to make the switch. Bear in mind you will need to pay £1,000 or more into the account each month or have another financial product with the bank, such as a savings account.
Barclays also offers a £200 interest-free overdraft on its bank account, providing you add a ‘pack’ to the account. These packs include ‘travel’ (travel insurance, breakdown cover), ‘tech’ (gadget insurance) and ‘home’ (satellite and TV equipment cover, extended warranty), but you will have to pay for these – costs vary from £6 a month to £13.50 a month.
Bear in mind
It’s important to bear in mind that if you do switch current accounts, the new provider might not necessarily grant you an agreed overdraft. And even if it does, it might not be the same size as agreed on your existing account.
When you apply for a current account, the provider will check your credit score to determine whether they are happy to give you an overdraft and how much it will be - the higher your score is, the more chance of success you have. You can check your credit rating through our credit monitoring channel.
Should you discover that your credit rating is pretty good, it’s well worth taking the time to switch. If it’s not as good as it could be, read these top tips to improve it.
In light of the 7-Day Switch, there are signs that banks are pulling their socks up and are improving their services. HSBC and First Direct, for example, have revealed that from Sunday, November 24, customers will no longer be charged a fee if the bank chooses not to pay a transaction due to insufficient funds in their account. Currently, customers can be charged up to £25 if they don't have enough money in their account to cover a payment.
Brendan Cook, head of retail banking and wealth management for HSBC UK, said: "Removing the fee for unpaid transactions is the start of further improvements to our overdraft service. We are listening to our customers so the changes will make our service simpler and better reflect their needs."
However, HSBC will continue to levy an overdraft arrangement fee if you exceed your arranged overdraft by more than £10 and the payment goes through (although you will be let off if you have not done this in the last six months). The fee will match how much you have exceeded your agreed overdraft by, up to a cap of £25 per incident.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct