Current accounts with overdraft

Comparisons of current accounts with overdrafts[1]


  • Compare authorised and unauthorised overdraft interest rates and fees
  • Review switching incentives and other current account features to find the right option
  • Try our midata tool to see how much you could save on overdraft charges by switching

How does an overdraft work?

If there isn’t enough money in your account to cover your spending or a cash withdrawal, you’ll become overdrawn. This is shown as a negative amount on your bank balance.

An overdraft lets you borrow extra money through your current account, and it’s usually set at an agreed limit with your bank or lender.

But there’s a big difference between an arranged and an unarranged (or unauthorised) overdraft.

Customer paying by card in a shop
  • Arranged overdraft

    An arranged overdraft is one that’s agreed in advance with your bank or building society. But not all bank accounts are eligible for one.

    Arranged overdrafts usually come with an interest-free buffer, which is the amount you can owe before you’ll be charged interest.

    You may be offered an overdraft automatically when you apply for a current account, or you might have to request one.

    If you repeatedly exceed your arranged limit, your bank may reduce or remove the overdraft facility.

  • Unarranged overdraft

    An unarranged overdraft is when you spend more money than is in your current account, or you go over an authorised overdraft limit without agreeing this with your bank or building society first.

    This unauthorised amount won’t benefit from an interest-free buffer, so you’ll automatically be charged interest when you go overdrawn.

    Some banks have a monthly cap on unarranged overdraft charges, which will vary between providers.

    The lender may honour your payments, but they’ll probably charge you a fee for doing this. However, some banks now refuse unarranged overdrafts and will just decline transactions instead.

    Having an unarranged overdraft is likely to damage your credit score.

How much do overdrafts cost?

Since April 2020, the way that banks and building societies charge for overdrafts changed.

Banks must now charge the same flat annual interest rate - called the equivalent annual rate (EAR) – for both arranged and unarranged overdrafts.

They’re no longer allowed to charge daily or monthly overdraft fees and there won’t be higher interest rates or extra charges for unauthorised overdrafts, although you may still incur an unpaid transaction fee.

The EAR helps you compare overdrafts against other products and lenders.

The interest rates vary between lenders but many have EARs of 39.9% and a typical interest-free overdraft limit is around £500.

Should I get a bank account with an overdraft?

Before you make a decision, there are a number of pros and cons to consider:

  • Advantages

    • Avoid missing payments - Having overdraft protection means your transactions and bills will still be paid even if there isn’t enough money in your account
    • Flexible way to borrow - It lets you borrow as much as you like up to your agreed limit and you can pay it back without incurring an early repayment fee
    • Emergency access to funds - An overdraft can help cover unexpected bills and act as a short-term safety net before your next payday
    • Useful for variable income - If your earnings change from month to month, an overdraft can help cover any temporary short-fall
    • Quick to apply for - There’s less paperwork than other forms of lending, like a credit card or loan
  • Disadvantages

    • You’re likely to be charged interest - Once you go outside of your interest-free limit you’ll be charged interest daily, which is added to your account on a monthly basis
    • Other products may have better rates - Overdraft interest rates can be higher than other ways of borrowing - an unsecured loan is usually a better option for long-term borrowing
    • You may damage your credit score - Going over your agreed overdraft limit or using an unarranged overdraft can negatively impact your credit rating and future chances of accessing credit
    • Borrowing limits are less than a loan - Whereas you could borrow £10,000 or more with a personal loan, typical maximum overdraft limits are much less than this
    • You may be tempted to overspend - When an overdraft’s packaged with a current account, it might be seen as a perk rather than to be used for emergency borrowing

How much overdraft can I get?

The overdraft limit offered will depend on your financial circumstances when you first apply to open your account.

Each bank has its own rules and criteria for who is eligible for an overdraft. They’ll look at your outgoings and income, as well as your credit score and employment status.

You can get overdrafts that range from small amounts under £100, up to thousands of pounds.

Once you’ve opened your account, your bank may let you extend your overdraft, but it can also choose to reduce or cancel it at any point.

How to apply for a bank account with an overdraft

When you’re looking for a bank account, it’s best to shop around to make sure you get the best rates and incentives.

To apply for a new account, you’ll need to:

  1. Compare current accounts with overdrafts

    We can help you compare accounts in minutes. You can filter by what’s important to you - a better interest rate, switching incentives or a specific provider

  2. Check eligibility criteria

    Take a look at eligibility criteria before you apply. Many banks have online tools to help you see whether you’re likely to be accepted for an arranged overdraft

  3. Gather documents you may need

    You’ll need to provide any previous addresses for the last three years, proof of your identity and current address, as well as details of your employment and income

  4. Apply online or in branch

    The quickest and easiest way is to apply online, but most banks will let you can go into a branch or apply over the phone

  5. Provide personal details and agree to a credit check

    You’ll need to give details like your age, gender, marital status, and nationality. And you’ll need to agree to a credit check

Which other accounts can have an overdraft?

While it’s mostly current accounts that come with overdrafts, it’s also possible to have an overdraft with some student accounts.

Student account overdrafts are interest-free until you graduate, so they can be a good option for providing you with a buffer in case of emergencies.

Many student accounts offer tiered overdraft amounts which increase each year of your studies, but this will also increase the potential for getting into debt.

If your existing regular current account doesn’t have an overdraft facility, it’s possible to switch to a new one that has an arranged overdraft. You can do this by using your bank’s free current account switching service.

Tips for paying off your overdraft

Using your overdraft for a long time is an expensive way to borrow money, so try to pay it off as soon as you can.

To get started, try doing the following:

  1. Draw up a budget

    Work out what you’re spending each month, as well as your income. Look at your typical balance before you get paid. See if there are any areas you can save or cut back on and put this money towards paying off your overdraft

  2. Use your savings

    If you’ve got money in a savings account, use this to pay off your overdraft. Then, once you’ve paid off your overdraft, you can start to build your savings back up again

  3. Switch to a cheaper overdraft

    See if you can switch your account to a new provider. If you’re eligible, you may be able to get a cheap or 0% overdraft when you switch banks, which can help you pay off your debt more quickly

  4. Consider lower rate options

    If you can’t do the above, look at low-rate personal loans or consider moving your debt to a 0% credit card - you can usually get an interest-free period of up to 18 months

  5. Speak to your bank or building society

    Explain you want to pay off your overdraft and see whether they’ll agree to reduce your limit gradually each month. They might even be willing to pause interest and charges on your overdraft for a time

What can I do to reduce my charges?

If you find your overdraft costs are adding up and you’re unhappy with how much you’re being charged, it’s best to shop around.

It’s usually possible to switch accounts to a different bank with a cheaper overdraft. But some interest-free overdrafts only last for a set time, so it’s important to check before you make the switch.

You could also look at other cheaper lending options, like a personal loan or a credit card with a 0% interest period.

[1]Gocompare.com introduces customers to Runpath Regulated Services, which is authorised and regulated by the Financial Conduct Authority. Gocompare.com's relationship with Runpath Regulated Services is limited to that of a business partnership, no common ownership or control rights exist between us. Please note, we cannot be held responsible for the content of external websites and by using the links stated to access these separate websites you will be subject to the terms of use applying to those sites