Thanks to the array of fees many banks charge, regularly using your overdraft can be very expensive.
Fortunately, some current accounts won’t penalise you so harshly for dipping into the red, and the Competition and Markets Authority (CMA) reckons heavy overdraft users could save up to £260 a year if they switched to one of these.
Despite this, more than half of us (57%) haven’t switched current account provider for more than 10 years, says the CMA, and more than a third of us (37%) haven’t switched for more than 20 years.
Ironically, it’s those with overdrafts who are the least likely to make the switch.
Why it pays to switch
Switching to a more competitive current account will not only save you money, it will also help you to pay off your overdraft more quickly.
And thanks to the 7-Day Switch rules, switching current accounts has never been easier or quicker.
Moving to a new bank account takes just seven working days. And the great news is, your new bank is responsible for moving over all of your outgoing payments (such as direct debits) and all of your incoming payments (such as your salary).
This is guaranteed for 36 months from your agreed switch date.
And should a mistake be made, resulting in a missed payment, you’ll be refunded for any fines or interest (lost or charged). So you won’t lose out.
Let’s look at some of the best current accounts for going overdrawn:
If you only tend to dip in to the red from time to time, First Direct’s 1st Account offers a £250 interest-free overdraft. You’ll be charged 15.9% EAR (variable) on arranged overdrafts above this.
You’ll also be given £100 for switching to the account, so long as you pay in at least £1,000 within three months of opening your account.
Paying in at least £1,000 a month or having another product with First Direct, such as a mortgage, will also ensure you avoid the £10 monthly fee on the account.
If you need a slightly larger overdraft, Clydesdale and Yorkshire Bank’s Current Account Direct offers a competitive overdraft rate of 9.9% EAR (variable). But be aware you will also have to pay a £6 fee every month you’re more than £25 in the red, so this won’t suit you if you’re frequently overdrawn.
For those months you are in credit you will earn 2.00% AER (variable) on balances up to £3,000, so long as you pay in £1,000 or more a month. T&Cs apply.
Plus, if you switch to this account before November 30, you’ll also get £150 cashback, so long as you use the Current Account Switch Service, pay in at least £1,000 a month and have at least two direct debits on the account.
If you’re frequently overdrawn and have an even larger overdraft, the Nationwide FlexDirect current account offers a fee-free overdraft for 12 months.
Try to view these 12 months as an opportunity to wave goodbye to your overdraft for good, as once the year is up, you’ll be charged 50p per day on arranged overdrafts over £10 (the first £10 of your overdraft is free).
There’s an incentive for clearing your overdraft before the 12 months are up too, as you’ll start to earn a competitive rate of interest on your in-credit balance, so long as you pay in at least £1,000 a month.
The account pays a fixed rate of 5.00% AER on balances up to £2,500 for the first 12 months from account opening. So if you paid off your overdraft within six months, for example, you’d earn 5.00% AER for the remaining six months.
After that, the rate drops to 1.00% AER (variable).
If you’re struggling to clear your overdraft, a 0% money transfer credit card could be a cheaper option. These cards allow you to move available credit straight into your current account and you can use those funds to pay off your overdraft.
The downside of these cards is the transfer fee.
Virgin Money offers 37 months’ interest-free on money transfers made in the first 60 days, but there is a 4% fee (5% after the first 60 days).
Alternatively, Virgin’s Money Transfer credit card offers 36 months’ interest-free on money transfers made in the first 60 days, for a lower 2.39% fee (5% after the first 60 days).
Be sure to pay your balance off before the end of the 0% period, otherwise you’ll pay 20.9% APR (variable) with both cards.
All overdrafts are subject to status and approval.
*Representative Example: If you spend £1,200 at a purchase interest rate of 18.9% p.a. (variable) your representative rate will be 18.9% APR (variable).
All credit cards are subject to status and terms and conditions. Over 18s, UK residents only. Terms and conditions apply. See MoneySuperMarket.com for further information.
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.