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Best bank accounts for arranged overdrafts

Avoid expensive bank account charges with our table of the best current accounts if you use an authorised overdraft. 

In this article
How does an overdraft work? Banks with cheap arranged overdrafts The best banks for overdrafts in detail Is it bad to use an overdraft? How much overdraft can I get?
Does an overdraft affect my credit score? Can I switch banks when I'm overdrawn? Can I get an overdraft with a joint bank account? Worst bank accounts if you’re overdrawn

How does an overdraft work?

An overdraft is a credit facility that allows you to borrow more money than you have in your current account. There are two types of overdraft, and these carry different interest rates and fees:

Arranged overdrafts

Sometimes called authorised or formals overdrafts, this is an agreed with your bank in advance up to your overdraft limit, which will be reviewed on a regular basis.

Unarranged overdrafts

Sometimes called unauthorised or informal overdraft, this is when you go overdrawn past your arranged overdraft limit, or (if you don’t have an arranged overdraft) when your balance falls below £0.

Some banks offer an interest-free 'buffer' which means you won't be charged if you go overdrawn up to this limit.

This can vary from £10 to £250. Beyond this buffer, you could face debit interest on the amount borrowed, shown as an equivalent annual rate (EAR) of around 11% to 20% to help you compare different accounts.

This is a variable rate so it can change at any time.

You could also face daily usage fees ranging from 50p to £5, and monthly usage fees ranging from £6 to £12. 

Banks with cheap arranged overdrafts

Provider Account
name
undefined Arranged
overdraft
charges 
Cost of £500
overdraft for
one week

Recommended provider

undefinedFirst Direct
1st
Account

85%

0% under
£250 then
15.9% EAR

£0.71

Recommended provider

undefinedM&S Bank
Current
Account
75% 0% under
£100 then
15.9% EAR
£1.13
undefined

Starling Bank

Current
Account

n/a

15% EAR
(waived if less
than 10p)

£1.34
undefined

Metro Bank

Current
Account
76% 15% EAR  £1.34
undefined

Post Office Money

Standard n/a 15.18% EAR £1.36

Recommended provider

undefinedNationwide Building Society
FlexAccount 79% 18.9% EAR Free in first three
months, then £1.66

undefinedThe Co-operative Bank

Current
Account

71%

18.9% EAR £1.66

Recommended provider

undefinedNationwide Building Society
FlexDirect 79% 0% for 12
months, then
50p per day
(after £10
buffer)
Free in first year,
then £3.50

 

Table updated November 2018.

Which? Customer Score: Which?'s rating for customer satisfaction, based on feedback from real customers. The score is made up of a customer's overall satisfaction with the brand, and how likely they are to recommend that brand to a friend. We surveyed 5,081 members of the general public in September 2018.

 

The best banks for overdrafts in detail

First Direct 0% overdraft up to £250

Which? Recommended Provider First Direct offers an interest-free overdraft of £250 if you take out its 1st Account. 

If you borrow more than £250, you’ll pay 15.9% EAR.

The online bank has ditched its popular £100 cash switching incentive but it has replaced this with your pick of these freebies:

  • an Amazon Echo Spot (worth around £120)
  • a £150 Expedia voucherBose on-ear wireless headphones (worth around £170)
  • Bose SoundSport wireless headphones (worth around £130)
  • a Fitbit Charge 2 Special Edition (worth around £14)
  • an online Blue Mountain self-development course

You need to complete a full switch using the Current Account Switch Service (which means you close your old account and move your regular payments across) and pay in £1,000 within three months of opening the account to be eligible for this ‘Hello’ gift.

A unique registration code and instructions about how you can choose your gift should be sent within 14 days.

You'll have 90 days from when you complete your gift registration to choose your gift. This freebie is only available to people who haven't previously held a current, savings or mortgage account with First Direct.

What do you need to know?

The 1st Account costs £10 in any month that you don’t pay in £1,000, or maintain an average balance of £1,000. However, this fee is waived if you have another account with First Direct, including a savings account (excluding the Regular Saver), mortgage, credit card or loan.

First Direct shares deposit protection with its parent bank HSBC.

Nationwide 0% overdraft for a year

Another Which? Recommended Provider, Nationwide offers two accounts worth considering if you want a cheap overdraft.

The FlexDirect account offers an interest-free overdraft for a full year, with a fairly low fee of 50p per day thereafter (with a £10 buffer).

It also rewards you for being in credit – if you pay in £1,000 or more a month, you'll earn 5% on balances up to £2,500 in the first year, then 1%.

If you’re likely to need to use an arranged overdraft for more than a year, and want to stick with Nationwide, the FlexAccount is a better option.

With this account, you pay nothing for the first three months – as long as you fully switch your existing current account and close your old account – then 18.9% EAR. 

Or, if you're looking to take out a packaged account with inclusive insurance, FlexPlus (a Which? top pick costing £13 per month) is also fee-free for the first three months and allows a £250 buffer beyond this. 

The building society also offers a ‘refer-a-friend’ bonus of £100 each for you and up to five friends per tax year, if they successfully switch their main current account.

What do you need to know?

If you’ve held a FlexDirect account in the past 12 months, you won’t be eligible for the interest-free overdraft.

To qualify for the interest-free period on the FlexAccount you must fully switch your existing current account (which involves transferring all your regular payments and closing your old account).

Is it bad to use an overdraft?

Firstly, not all overdrafts are the same, as you can see from the tables in this guide. 

Secondly, overdrafts are a very flexible form of credit, because you’re free to borrow as much or as little as you like up to your agreed limit and can pay it back without incurring an early repayment fee.

However, they are a very expensive way to borrow long-term, particularly if your bank charges a daily or monthly fee as well as debit interest. An unsecured personal loan is more suitable for long-term borrowing. 

How much overdraft can I get?

Overdraft limits are usually set when you first apply to open an account, based on your individual financial circumstances. 

Occasionally, banks will offer an automatic overdraft (M&S Bank gives customers an automatic £500 overdraft, the first £100 of which is interest-free).

But generally, they will consider your monthly incomings and outgoings, your credit score and employment status before deciding how much they are willing to offer you.

Your bank may agree to extend your overdraft limit at a later date, either temporarily or permanently. But all banks can reduce or cancel an overdraft at any time.

Does an overdraft affect my credit score?

All lenders assess existing credit products differently, including overdrafts. This means an overdraft shows up on your credit report. 

If you’re applying for a mortgage, lenders will ask to see your bank statements (typically your last three months' worth).

Using an arranged overdraft sparingly shouldn’t cause any problems, unless you have applied for more finance or demonstrated poor money management in other ways.

But, living in your overdraft from month to month or using an unarranged overdraft could scupper your chances.

Can I switch banks when I'm overdrawn?

Being overdrawn shouldn’t stop you from switching to a new account – it should encourage you to shop around because overdraft users are more likely to gain from switching than other customers.

When you switch using the seven-day Current Account Switching Service (CASS), your overdraft can be transferred over, although your new bank may not match the overdraft limit you had before.

If you can’t move the old overdraft over to the new account, you will need to repay some, or all, of the existing overdraft before you switch.

Can I get an overdraft with a joint bank account?

Most joint bank accounts are run on an ‘either-to-sign’ basis where all parties can make authorise transactions and make decisions independently.

Crucially, this means anyone can increase or decrease an overdraft. And, each person is responsible for the overdraft, even if they didn’t run up the debt.

Banks can even transfer money from any other accounts you hold with them to cover the debt on your joint account (though not the other way around).

Worst bank accounts if you’re overdrawn

While it is useful to compare the EAR shown, this doesn’t include any fees that might be charged in addition to interest.

These fees may apply on a daily or monthly basis and when coupled with the interest, the total cost of an overdraft can mount up very quickly. 

In the table below, we show the worst banks for an overdraft of £500 for one week, taking all charges into account. 

Provider

Account
name

undefined

Arranged 
overdraft charges 

Cost of
borrowing £500
for a week

undefined

NatWest

Select
and Reward
66%

19.89% EAR (£10 buffer)

monthly usage fee of £6

£7.74
undefined
Royal Bank of Scotland
Select
and Reward
60%

19.89% EAR (£10 buffer)

monthly usage fee of £6

 

£7.74

undefinedTSB

Classic 72%

19.84% EAR (after £35 buffer)

monthly usage fee of £6

£7.62

undefinedSantander

More info

If you switch to Santander, it offers an interest and fee-free overdraft  of up to £5,000 for the first four months. 

123 65%

£1/day under £2,000

£2/day at £2,000 to £3,000

£3/day over £3,000

(£12 buffer)

£7
undefinedYorkshire Bank

 

More info

Two days grace to avoid overdraft fees. 

B account 68%

12.5% EAR

monthly usage fee of £6

(£25 buffer)

£6.13
undefinedClydesdale Bank

 

More info

Two days grace to avoid overdraft fees. 

B account 67%

12.5% EAR

monthly usage fee of £6

(£25 buffer)

£6.13
undefinedBarclays

 

More info

 Overdraft buffer increases to £200 if a Travel, Tech or Home 'Pack' has been added to account. 

Personal 67%

75p/day up to £1,000

£1.50/day at £1,000 to £2,000

 £3/day over £2,000

(£15 buffer)

£5.25
undefinedLloyds Bank Classic

66%

1p for every £7 borrowed £4.97

 

Table last updated on 10 October 2018.

Which? Customer Score: Which?'s rating for customer satisfaction, based on feedback from real customers. The score is made up of a customer's overall satisfaction with the brand, and how likely they are to recommend that brand to a friend. We surveyed 5,023 members of the general public in March 2018.

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