Advantages and disadvantages of an overdraft

Most of us find ourselves strapped for cash at times, and this is where an overdraft can come in handy. But while there are many benefits to using an overdraft, there are also a number of downsides to consider.

Overdrafts are a flexible way to borrow.
They can also be an expensive way to borrow, with very high interest rates.
You can compare bank accounts with overdrafts here.

What are the advantages of an overdraft?

There are a number of advantages to using an overdraft. These include:

Flexible borrowing. An overdraft is there when you need it, so you can dip in and out of it as required.
No fixed repayments. Unlike with a loan, there are no fixed repayments with an overdraft – you simply pay back what you can, when you can.
Quick to apply for. You might be automatically given an overdraft when you open a current account, or if not, it’s quick to apply for one separately.
Easy to ask for an increase. You can ask for your overdraft to be increased (or reduced) at any point.
Interest-free buffer. Some banks or building societies offer an interest-free buffer on their overdrafts, or in a few cases, you might have an interest-free overdraft for a year or more. Many student accounts offer interest-free overdrafts.

What are the disadvantages of an overdraft?

Of course, there are also downsides to using an overdraft. These include:

Lower borrowing limits. You can’t borrow as much with an overdraft as you can with a loan.
Expensive way to borrow. Many overdrafts come with high rates of interest – this can be as much as 40% in some cases, making it a costly way to borrow.
Difficult to get out of debt. Since there is no repayment term, it’s easy to overspend and stay in your overdraft permanently.
Your bank can reduce or cancel your overdraft. An overdraft is a form of credit that can be taken away at any time, even without notice.

Compare bank accounts with an overdraft facility

15 of 140 results

Finder Score	Account fees	Funding requirement	Interest (AER)	Arranged overdraft	Incentive	Representative example
8.9Great Royal Bank of Scotland Premier Reward Cashback	8.9Great	£2 per month	£1250 per month	0% AER	39.49% EAR variable (subject to status)	£500 welcome bonus when you switch to Royal Bank of Scotland Premier. T&Cs and restrictions apply. More info For the £500 bonus, use the Current Account Switch service to close your current account held elsewhere and switch to a Premier Reward account. You must pay in at least £15,000 (this can be made up of multiple payments, such as your salary and each payment needs to stay in your account for at least 24 hours) and log in to the app within 90 days. Once all offer criteria have been met and verified after 90 days, your £500 welcome bonus will be paid within the following 30 days.	To apply for a Premier Reward account, you need to be aged 18+ UK resident and deposit £1250 every month to any RBS current account. Also, you must meet one of the following requirements have a minimum of £100k individual income or £120k joint income into a RBS account, or a minimum £100k savings or investments held with us, or a £500k+ mortgage borrowing with us. Representative Example: Effective Annual Rate: 39.49% EAR (variable). Representative APR: 39.49% APR (variable). Assumed credit limit: £1,200. How does this overdraft compare? Representative APRs help you compare the cost of different credit products. The monthly cap for unarranged overdraft charges for a Premier Reward account is £18.80. For more information, please visit the Royal Bank of Scotland site.	Go to site More info Compare product selectionCompare	loading
9Excellent NatWest Select Account	9Excellent	£0	No minimum funding requirement	0% AER	39.49% EAR variable (subject to status)	£200 offer when you switch to NatWest. T&Cs apply. More info For £200, open a Select or Reward account and switch using the Current Account Switch Service. Pay in £1250 & log into the app within 60 days. You must not have held a current account on 06/05/26 or previously received an offer from NW Group. T&Cs & account criteria apply. Fees may apply. May be withdrawn at any time.	You must be 18+ and a UK resident. Representative Example: Effective Annual Rate: 39.49% EAR (variable). Representative APR: 39.49% APR (variable). Assumed credit limit: £1,200 Subject to status. How does this overdraft compare? A good way to compare the cost of borrowing products is by using APR, which show the cost of borrowing over the year.	Go to site More info Compare product selectionCompare	loading
8.6Great Santander Everyday Current Account Cashback	8.6Great	£0	No minimum funding requirement	0% AER	39.94% EAR variable	£240 if you complete a full switch using CASS, set up 2 household direct debits, pay in £1.5k and save £200 in a Santander Regular Saver within 60 days. Offer ends 7th October 2026. T&Cs and exclusions apply.	Representative example: If you use an arranged overdraft of £1,200, you'll be charged interest at 39.94% EAR variable.	Go to site More info Compare product selectionCompare	loading
8.8Great Nationwide Building Society FlexPlus	8.8Great	£18 per month	No minimum funding requirement	0% AER	0% EAR variable on the first £50 and then 39.9% EAR variable	Free travel accident insurance – covers account holder and family (also when travelling independently).	Representative example: If you use an arranged overdraft of £1,200, you'll be charged interest at 0% EAR variable on the first £50 and then 39.9% EAR variable. Account fee of £18 per month.	More info Compare product selectionCompare	loading
Not yet rated Nationwide Building Society FlexDirect => £1,500 per month Cashback	Not yet rated	£0	£1500 per month	5% AER	0% EAR variable on the first £50 and then 39.9% EAR variable	£175 switch offer. T&Cs apply.	Representative example: If you use an arranged overdraft of £1,200, you'll be charged interest at 0% EAR variable on the first £50 and then 39.9% EAR variable.	More info Compare product selectionCompare	loading
Not yet rated TSB Student Account	Not yet rated	£0	No minimum funding requirement	5% AER	N/A	Representative example: If you use an arranged overdraft of £1,200, you'll be charged.	More info Compare product selectionCompare	loading
Not yet rated Halifax Reward Current Account Cashback	Not yet rated	£0	£1500 per month	1.5% AER	0% EAR variable on the first £100 and then 29.9% EAR variable	Representative example: If you use an arranged overdraft of £1,200, you'll be charged interest at 0% EAR variable on the first £100 and then 29.9% EAR variable.	More info Compare product selectionCompare	loading
9.3Excellent Lloyds Bank Lloyds Premier Cashback	9.3Excellent	£0	£5000 per month	1.5% AER	0% EAR variable on the first £100 and then 29.9% EAR variable	£200 switch offer. T&Cs apply.	Representative example: If you use an arranged overdraft of £1,200, you'll be charged interest at 0% EAR variable on the first £100 and then 29.9% EAR variable.	More info Compare product selectionCompare	loading
8.4Great Virgin Money M Plus Account Cashback	8.4Great	£0	No minimum funding requirement	1% AER	19.9% EAR variable	Representative example: If you use an arranged overdraft of £1,200, you'll be charged interest at 19.9% EAR variable.	More info Compare product selectionCompare	loading
Not yet rated Bank of Scotland Vantage Classic Account Cashback	Not yet rated	£0	£1000 per month	0.75% AER	29.9% EAR variable	Representative example: If you use an arranged overdraft of £1,200, you'll be charged interest at 29.9% EAR variable.	More info Compare product selectionCompare	loading
9.8Excellent Club Lloyds Cashback	9.8Excellent	£0	£2000 per month	0.75% AER	0% EAR variable on the first £100 and then 29.9% EAR variable	£200 switch offer. T&Cs apply.	Representative example: If you use an arranged overdraft of £1,200, you'll be charged interest at 0% EAR variable on the first £100 and then 29.9% EAR variable.	More info Compare product selectionCompare	loading
Not yet rated Bank of Ireland UK 3rd Level Student Account	Not yet rated	£0	No minimum funding requirement	0.5% AER	N/A	Representative example: If you use an arranged overdraft of £1,200, you'll be charged.	More info Compare product selectionCompare	loading
Not yet rated Ulster Bank Private Current Account	Not yet rated	£0	No minimum funding requirement	0.01% AER	19.49% EAR variable	Representative example: If you use an arranged overdraft of £1,200, you'll be charged interest at 19.49% EAR variable.	More info Compare product selectionCompare	loading
Not yet rated Halifax Student Current Account Cashback	Not yet rated	£0	No minimum funding requirement	0% AER	N/A	Representative example: If you use an arranged overdraft of £1,200, you'll be charged.	More info Compare product selectionCompare	loading
9.5Excellent Barclays Premier Current Account Cashback	9.5Excellent	£0	No minimum funding requirement	0% AER	0% EAR variable on the first £500 and then 35% EAR variable	Representative example: If you use an arranged overdraft of £1,200, you'll be charged interest at 0% EAR variable on the first £500 and then 35% EAR variable.	More info Compare product selectionCompare	loading

Showing 15 of 140 results

Finder Score for bank accounts

To make comparing even easier we came up with the Finder Score. Fees, features and customer service across 20+ of the most popular banks are all weighted and scaled to produce a score out of 10. The higher the score the better the account – simple.

Read the full methodology

How does an overdraft work?

There are 2 types of overdraft – arranged and unarranged. An arranged (or authorised) overdraft is one you’ve agreed with your bank in advance. Some arranged overdrafts might come with an interest-free buffer, meaning you won’t be charged interest if you dip into your overdraft by this amount. However, it tends to only be around £10.

An unarranged (or unauthorised) overdraft, on the other hand, is where you haven’t agreed to an overdraft with your bank but spend more than you have in your account. It can also include going over the limit of your authorised overdraft.

Interest rates and fees on unarranged overdrafts used to be a lot higher than arranged overdrafts. However, new rules introduced in April 2020 mean that banks must now charge a single annual interest rate on all overdrafts, making it easier for customers to compare charges. Interest rates for unarranged overdrafts can no longer be higher than for arranged overdrafts, and rates tend to range from 19% to 40% APR.

Are there any alternatives to an overdraft?

Yes, there are several alternatives to using an overdraft. One is a 0% purchase credit card, which you can use to spread the cost of your spending interest-free over a number of months. Just make sure you clear the balance before the 0% deal ends.

Alternatively, you could use a low APR credit card, which charges a low rate of interest for the life of the debt. This means you can use it for ad hoc purchases, and the interest rate charged will likely be a lot lower than on an overdraft.

You could also consider a money transfer credit card. This lets you move money from your credit card into your bank account. You can then use these funds for purchases or to pay off existing debt. If you choose a card with a 0% introductory offer, you’ll also avoid paying interest for several months. Just watch out for the transfer fee.

Finally, if you need to borrow a lump sum of cash, you could consider applying for a personal loan. Interest rates are generally far more competitive than overdraft rates, but you need to pay back the amount borrowed in fixed monthly repayments over a set term.

Bottom line

Overdrafts can be useful as a backup if you suddenly need extra cash to pay for emergency car repairs or to cover an unexpected bill, for example. However, they should be considered a short-term form of borrowing only, as interest rates on overdrafts can be very high. If you plan to use an overdraft for the long term, it’s better to seek out cheaper alternatives.

We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables is provided by Defaqto. In other cases, Finder has sourced data directly from providers.

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Written by

Rachel Wait

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Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time. See full bio

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Advantages and disadvantages of an overdraft

Thinking of using an overdraft? We weigh up the pros and cons of doing so.

Key takeaways

What are the advantages of an overdraft?

What are the disadvantages of an overdraft?

Compare bank accounts with an overdraft facility

Finder Score for bank accounts

How does an overdraft work?

Are there any alternatives to an overdraft?

Bottom line

Rachel Wait

More guides on Finder

Advantages and disadvantages of an overdraft

Thinking of using an overdraft? We weigh up the pros and cons of doing so.

Key takeaways

What are the advantages of an overdraft?

What are the disadvantages of an overdraft?

Compare bank accounts with an overdraft facility

Finder Score for bank accounts

How does an overdraft work?

Are there any alternatives to an overdraft?

Bottom line

Rachel Wait

More guides on Finder

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