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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 or free 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 formal 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 40% 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. 

  • From April 2020unarranged fees will be scrapped because banks and building societies will be banned from charging daily or monthly overdraft fees and will no longer be able to penalise customers who go over their overdraft limit.

 

Banks with cheap or free overdrafts

Many banks and building societies are changing their overdraft structure to comply with new Financial Conduct Authority (FCA) rules on overdrafts from April 2020.

So far, four lenders have announced they will charge customers as much as 39.9%, though other banks have yet to make their move. 

We have made a note of these changes where relevant:

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

Recommended provider

First Direct

 

More info

First Direct will continue to offer a 0% overdraft on the first £250 borrowed but from 14 March 2020, customers will pay 39.9% EAR beyond this, instead of 15.9%. 

1st Account

84%

0% under £250 then 15.9% EAR

£0.71

Recommended provider

M&S Bank

 

More info

M&S Bank will increase it's 0% overdraft to the first £250 from 14 March 2020 but customers will pay 39.9% EAR beyond this, instead of 15.9%. 

Current Account 76% 0% under £100 then 15.9% EAR £1.13

Recommended provider

Starling Bank

 

More info

Starling Bank is replacing its flat rate of 15% with a rate of 15%, 25% or 35% EAR dependent on your credit scores from 1 April 2019. 

Current Account 83%

15% EAR (waived if under 10p)

£1.34
Metro Bank Current Account 75% 15% EAR  £1.34

The Co-operative Bank

Current Account

73%

18.9% EAR £1.66

 

Data correct at January 2020.

Which? Customer Score: Our 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 4,216 members of the general public in September 2019. Our full table includes scores and star ratings for all banks. 

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, though this is rising to 39.9% EAR from 14 March 2020.

The online bank is also offering £50 to people who switch to it.

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 bonus.

What do you need to know?

This deal isn't available for much longer. First Direct will introduce a flat overdraft fee of 39.9% from 14 March, meaning that the cost of borrowing will more than double for some customers.

The first £250 will still be interest-free so you only pay the new rate if you borrow more than this. 

Bear in mind that First Direct shares deposit protection with its parent bank HSBC.

Starling Bank 15% overdraft with no extra fees

Mobile-only bank Starling offers one of the cheapest arranged overdrafts in the market. 

If you’re offered an overdraft when you open the account (subject to its credit check) you only pay interest on the amount borrowed, charged at a flat rate of 15% EAR, with no additional fees. 

The bank sends instant notifications when you’re using your overdraft and you can use the app to see how many days you’ve been in your overdraft, and how much interest you’ve accrued.

Most payments that would take you over your agreed overdraft limit will be stopped - but if this happens by accident, Starling will only ever charge the standard 15% EAR, capped at a maximum of £2 per month.

For the first time, we were able to include Starling Bank in our annual banking survey in September 2019 and it went straight into the top two and has been named a Which? Recommended Provider for current accounts. 

What do you need to know?

Starling Bank is replacing its flat rate of 15% with a rate of 15%, 25% or 35% EAR dependent on your credit score from 1 April 2019.

For customers who face a new rate of 25%, overdraft charges for borrowing £500 for seven days will increase from £1.35 to £2.19, while those paying the highest rate of 35% will be charged £2.97. 

The maximum overdraft will remain at £5,000, subject to status.

Nationwide 0% overdraft for a year

Nationwide's FlexDirect account offers an interest-free overdraft for a full year. 

After this you'll be stung with a rate of 39.9% EAR, so if you can't clear the overdraft debt within the 12 months, switch to a cheaper account. 

This account 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%.

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.

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

Nationwide is another Recommended Provider and is consistently rated very highly by its customers. 

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 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

NatWest Select and Reward 69%

19.89% EAR (£10 buffer) monthly usage fee of £6

£7.74
Royal Bank of Scotland Select and Reward 62%

19.89% EAR (£10 buffer) monthly usage fee of £6

 

£7.74

TSB

Classic 65%

19.84% EAR (after £35 buffer) monthly usage fee of £6

£7.62

Santander

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 70%

£1/day under £2,000; £2/day at £2,000 to £3,000; £3/day over £3,000 (£12 buffer)

£7
Yorkshire Bank

 

More info

Two days grace to avoid overdraft fees. 

B account 69%

12.5% EAR monthly usage fee of £6 (£25 buffer)

£6.13
Clydesdale Bank

 

More info

Two days grace to avoid overdraft fees. 

B account 63%

12.5% EAR monthly usage fee of £6 (£25 buffer)

£6.13
Barclays

 

More info

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

Personal 70%

75p/day up to £1,000; £1.50/day at £1,000 to £2,000;  £3/day over £2,000 (£15 buffer)

£5.25
Lloyds Bank Classic

69%

1p for every £7 borrowed £4.97

 

Data correct at July 2019.

Which? Customer Score: Our 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 4,216 members of the general public in September 2019. Our full table includes scores and star ratings for all banks. 

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