We use cookies to allow us and selected partners to improve your experience and our advertising. By continuing to browse you consent to our use of cookies as per our policy which also explains how to change your preferences.

Best bank accounts for unarranged overdrafts

Although you probably won't choose a bank account based on unauthorised overdraft charges, it can be useful to see which accounts are the cheapest.

In this article
What is an unarranged overdraft? Banks with no unarranged fees Worst banks for unarranged overdrafts Overdraft tools to reduce bank charges
New rules for overdrafts  Unarranged overdrafts and your credit score Quick tips to clear your overdraft

What is an unarranged overdraft?

When a payment takes you into an unarranged overdraft (also known as unplanned or unauthorised) your bank could charge you:

  • Debit interest on the amount borrowed, shown as an equivalent annual rate (EAR), typically around 11% to 20% EAR. 
  • Daily fees ranging from £5 to £10.
  • Monthly fees ranging from £6 to £25. 
  • Paid transaction fees from £5 to £25 when there aren't enough funds in your account but your bank allows the transaction. 
  • Unpaid transaction fees from £5 to £30 when there aren't enough funds in your account and your bank refuses the transaction. 

Banks have been told to set a monthly maximum charge (MMC) - a cap covering all fees and interest for any unarranged borrowing (it doesn’t apply to arranged overdrafts).

This cap varies from as little as £2 per month at Starling Bank to a hefty £100 at Clydesdale and Yorkshire Banks.  

Find out more: Best bank accounts for arranged overdrafts

Banks with no unarranged fees

Which? has repeatedly reported that unarranged overdraft charges can be more expensive than using a payday loan, and we’ve been campaigning to get banks to bring them in line with those for arranged overdrafts. 

Several high-street banks have already taken steps to reduce charges or do away with unarranged fees altogether. We want to see all banks bring an end to exorbitant overdraft charges.

Starling Bank

If you open an account with mobile-only bank Starling and you’re offered an overdraft (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. 

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

M&S Bank

Like Starling, M&S Bank current accounts don’t have an unarranged facility, although it does allow a £50 buffer to help in emergencies.

You won’t be charged for this, but you will be asked to pay it back straightaway.

Lloyds Banking Group 

Lloyds Banking Group scrapped unarranged overdraft fees and monthly usage fees in November 2017, affecting Lloyds Bank, Bank of Scotland and Halifax accounts.

Under the old system, customers who slipped into an unarranged overdraft paid an additional daily fee, plus extra charges for rejected payments.

Now, all customers pay 1p a day for every £7 overdrawn - whether they are within a pre-arranged overdraft facility or not.

Lloyds also allows a grace period to help you avoid overdraft fees (if you bring your account back into credit by midnight you don't pay an overdraft fee for that day).

Santander

Santander will follow Lloyds and remove unarranged overdraft charges from 10 July 2018 on all of its on fee-charging accounts.

Thisd includes the 123 Current Account, 123 Lite Current Account, Select and Private accounts. Read our news story to see if you'll be better or worse off. 

However, the bank’s free accounts - Everyday, Student and Graduate - will still be subject to unarranged overdraft fees of up to £6 per day, capped at £50 (down from £95). 

Avoid incurring fees by clearing an overdraft by 4pm that same day. 

Worst banks for unarranged overdrafts

Comparing total unarranged overdraft costs at a glance is difficult because some banks charge interest, while others apply a fixed daily or monthly fee, and a handful will hit you with a combination of both.

Most banks provide online overdraft calculators or illustrative examples of their charges but to give you a steer, our table below shows you the worst bank accounts if you dip into an unauthorised overdraft by £100 for one week. 

Provider Account
name
undefined Unarranged
charges
Transaction
fee
Cost of  borrowing
£100 over 7 days
Maximum
monthly charge
undefinedTSB

 

More info

Monthly usage fee doesn't apply if you've already paid one for using a planned overdraft. Max three unpaid transaction fees per day.

Classic and
Classic Plus
72%

Monthly usage fee of £6

19.84% EAR

£5/day up to £25

or £10/day over £25 

£10 unpaid £76.35 £80
undefinedRoyal Bank of Scotland

 

More info

Charges only apply once you exceed £10 buffer. In any given charging period, you pay a maximum of nine daily unarranged fees and one unpaid item fee. 

Select
and Reward
60% £8 a day  £8 unpaid £56 £80
undefinedNatWest
More info

Charges only apply once you exceed £10 buffer. In any given charging period, you pay a maximum of nine daily unarranged fees and one unpaid item fee. 

Select
and Reward
66% £8 a day  £8 unpaid £56 £80
undefinedSantander

 

More info

Charges apply once past £12 buffer. MMC fell from £95 to £50 on 10 July 2018.

Everyday 65% £6 a day £10 unpaid
and paid
£42 £50
undefinedClydesdale Bank B account 67% £6 a day £15 unpaid  £42 £100
undefinedYorkshire Bank B account 68% £6 a day £15 unpaid  £42 £100

 

Table last updated on 9 July 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.

Overdraft tools to reduce bank charges

Ask your bank if it allows a 'grace period' within which you can transfer funds on the same day to avoid overdraft charges for using an overdraft.

Santander customers have until 4pm to credit their account and avoid unarranged overdraft fees. 

At Barclays, Clydesdale and Yorkshire Banks it's 3pm, HSBC gives you until 11.45pm and Lloyds Banking Group brands give you until midnight to avoid a daily overdraft fee for that day.

They may also offer tools and features to help keep overdraft charges to a minimum, although use these with caution as they may not always save you money.

For example, Barclays customers can add a feature called 'Control' to minimise unapid transaction fees. This costs £8 and can be switched on or off each month.

Payments will still be returned if you don't have enough funds (so you may face penalties from other businesses for missing payments) but once Control is on, you won't incur the usual £8 daily fee when cheques, direct debits and standing orders bounce.

Instead, you'll pay the daily overdraft fee (75p to £5), capped at £35 in a monthly charging period. 

New rules for overdrafts 

The Competition and Market Authority has already told banks to set and publish a monthly maximum charge for unplanned overdrafts, following its retail banking market investigation. 

In May 2018, the Financial Conduct Authority published its final report into high-cost credit, after a two-year review, and has put forward these proposals to improve understanding and management of overdrafts:

  • Online or in-app tools to assess eligibility for overdrafts without appearing on credit reports
  • Online calculators to show the cost of overdrafts for different patterns of use. 
  • Text message or push notification alerts warning of potential overdraft charges. 
  • Banning showing overdrafts as 'available funds' to ensure that overdrafts are presented clearly as debt. 

It is also considering setting an upper limit on the MMC, a daily fee or interest cap (e.g. £2 or 0.2% a day) which could be extended to arranged overdrafts, and measures to ensure that firms address repeat overdraft use.

More radical measures are up for discussion, such as banning all fixed overdraft fees and aligning arranged and unarranged charges. 

The FCA has said that it is aiming to consult on proposed rules by the end of 2018, with any new rules coming into force by mid-2019. 

Unarranged overdrafts and your credit score

How you cope with an overdraft is important and can affect your credit score. This is turn could have an impact on whether you can get a loan, credit card or mortgage in the first place, as well as the interest you'll be charged. 

Your credit report contains details about each of your credit accounts, including any current accounts with overdrafts, as well as credit cards, store cards, loans and mortgages. 

Using a pre-arranged overdraft shouldn't negatively impact your credit rating, as long as you don't rely too heavily on it. But, using an unauthorised overdraft on a regular basis could be harmful to your credit score and hinder your ability to borrow. 

Find out more: Understanding your credit report

Quick tips to clear your overdraft

  • Ask your bank to extend your arranged overdraft or waive the fees to give you some breathing space.
  • Use mobile and online banking to check your balance regularly and keep an eye on outgoings. 
  • Sign up for text alerts to warn you when you’re approaching your overdraft limit to help you avoid charges. 
  • Change payment dates to make sure standing orders and direct debits leave your account at the right time, ideally shortly after you get paid. 
  • Switch to a cheaper bank offering an interest-free overdraft or lower overdraft charges. 
  • Shift the debt to a 0% credit card if you have a large overdraft that you can't pay off quickly. Read our guide to learn the golden rules for transfers. 
  • Open a basic account with no overdraft facility if you think this will help you manage your money better. 

Find out more in our guide to how to deal with debt