Best bank accounts with cheap or free overdrafts in the UK 2022

Overdrafts can be both really helpful or a true fee nightmare. If you use them often, it's worth looking for a bank account that prices them fairly.

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Name Product Ratings Account fees Funding requirement Interest (AER) Arranged overdraft Incentive Representative example Link
Starling Bank
Finder score
★★★★★
★★★★★
User survey
★★★★★
★★★★★
£0
No minimum funding requirement
0.05%
15% EAR variable
No fees overseas.
Representative example: If you use an arranged overdraft of £1,200 you'll be charged interest at 15% EAR variable.
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HSBC
Finder score
★★★★★
★★★★★
User survey
★★★★★
★★★★★
£0
No minimum funding requirement
0%
39.9% EAR variable
£150 for new accounts when a minimum of two Direct Debits or Standing Orders are switched using the Current Account Switching Service within 30 days of account opening and pay in at least £1,500 within 60 days of account opening. Plus earn 1.00% AER / gross interest with the linked HSBC Regular Saver.
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first direct
Finder score
★★★★★
★★★★★
User survey
★★★★★
★★★★★
£0
No minimum funding requirement
0%
An interest-free, arranged overdraft up to £250, then 39.9% EAR (variable)
£130 when you switch.
Representative example: If you use an arranged overdraft of £1,200, you’ll be charged interest at 30.5% (0% EAR variable p.a on first £250, 39.9% thereafter).
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Santander
Finder score
★★★★★
★★★★★
User survey
★★★★★
★★★★★
£0
No minimum funding requirement
0%
39.94% EAR variable
Eligible for Retailer Offers, customers must use online or mobile banking to qualify.
Representative example: If you use an arranged overdraft of £1,200 you'll be charged interest at 39.94% EAR variable.
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Barclays
Finder score
★★★★★
★★★★★
User survey
★★★★★
★★★★★
£0
Eligibility criteria applies. See below.
0%
N/A
Eligible for Barclays Blue Rewards.
To be eligible for Premier banking you’ll need to have either (1) An annual gross income of £75,000 or more paid into a Barclays current account or (2) a minimum of £100,000 saved or invested with Barclays. T&Cs apply. To be eligible for the 25,000 Avios sign up bonus, customers need to move their existing current account to Barclays via the Current Account Switching Service, within 3 months of joining Barclays Avios Rewards.
Representative example: 0% interest (variable) payable on arranged overdrafts up to £500. If you use an arranged overdraft above this amount the annual rate of interest is 35.0% (variable). 19.5% APR Representative (variable), based on a £1,200 overdraft balance. Overdrafts, including interest free amounts, are subject to application, financial circumstances and borrowing history.
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Santander
Finder score
★★★★★
★★★★★
User survey
★★★★★
★★★★★
£2 per month
Min. £500 Per Month
0%
39.94% EAR variable
Eligible for Retailer Offers, customers must use online or mobile banking to qualify.
Representative example: If you use an arranged overdraft of £1,200 you'll be charged interest at 39.94% EAR variable. Account fee of £2 per month.
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Santander
Finder score
★★★★★
★★★★★
User survey
★★★★★
★★★★★
£4 per month
Min. £500 Per Month
0.3%
39.94% EAR variable
Eligible for Retailer Offers, customers must use online or mobile banking to qualify.
Representative example: If you use an arranged overdraft of £1,200 you'll be charged interest at 39.94% EAR variable. Account fee of £4 per month.
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Virgin Money
Not yet rated
£0
No minimum funding requirement
2.02%
19.9% EAR variable
Apply online from the Virgin Red app or website and complete a full current account switch using the Current Account Switch Service to receive 15,000 points.
Representative example: If you use an arranged overdraft of £1,200 you'll be charged interest at 19.9% EAR variable.
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Nationwide BS
Finder score
★★★★★
★★★★★
User survey
★★★★★
★★★★★
£0
Min. £1000 Per Month
2%
39.9% EAR variable
£100 for new accounts and £125 for existing account holders when a minimum of two active Direct Debits are switched using the Current Account Switching Service within 30 days of account opening.
Representative example: If you use an arranged overdraft of £1,200 you'll be charged interest at 39.9% EAR variable.
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Bank of Scotland
Not yet rated
£0
Min. £1000 Per Month (Minimum two direct debit mandates on account per month)
0.6%
39.9% EAR variable
Everyday Offers - Earn up to 15% cashback from selected retailers when shopping with a Bank of Scotland credit or debit card.
Representative example: If you use an arranged overdraft of £1,200 you'll be charged interest at 39.9% EAR variable.
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Danske Bank
Not yet rated
£0
No minimum funding requirement
0%
38.33% EAR variable
Representative example: If you use an arranged overdraft of £1,200 you'll be charged interest at 38.33% EAR variable.
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HSBC
Finder score
★★★★★
★★★★★
User survey
★★★★★
★★★★★
£0
No minimum funding requirement
0%
Interest-free buffer of £500, N/A
£150 for new accounts when a minimum of two Direct Debits or Standing Orders are switched using the Current Account Switching Service within 30 days of account opening and pay in at least £1,500 within 60 days of account opening.
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Royal Bank of Scotland
Finder score
★★★★★
★★★★★
User survey
★★★★★
★★★★★
£0
No minimum funding requirement
0%
19.49% EAR variable
Free 24/7 Emergency Cash Service to withdraw up to £300 for online and telephone banking customers or £60 if not.
Representative example: If you use an arranged overdraft of £1,200 you'll be charged interest at 19.49% EAR variable.
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HSBC
Finder score
★★★★★
★★★★★
User survey
★★★★★
★★★★★
£0
No minimum funding requirement
0%
N/A
Eligible for Regular Saver product.
View details
NatWest
Finder score
★★★★★
★★★★★
User survey
★★★★★
★★★★★
£0
No minimum funding requirement
0%
39.49% EAR variable
Free 24/7 Emergency Cash Service to withdraw up to £300 for online and telephone banking customers or £60 if not.
Representative example: If you use an arranged overdraft of £1,200 you'll be charged interest at 39.49% EAR variable.
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Compare up to 4 providers

Most current accounts come with an overdraft facility these days, either discretionary or already included in the package.

But should you use it? How much is it going to cost you? How are you supposed to understand all those complicated fees? We’ve looked into it so that you don’t have to.

Latest reviews of current accounts with overdrafts

first direct - First Direct Current Account

£0

Minimum opening balance

£0

Account fees

0% AER

Interest (AER)

£130 when you switch.
This online fee-free current account contains a range of features, including the option to open a linked regular savings account, pay in cash and cheques in branches of HSBC and the Post Office, and manage your account online and via app. You can also set up “sweep” payments, transferring any remaining money in your account on a given day to a First Direct savings account. The bank boasts a strong customer service reputation, especially when it comes to telephone banking services. First Direct regularly offers incentive payments to encourage people to switch to them.
Representative example: Representative example: If you use an arranged overdraft of £1,200, you’ll be charged interest at 30.5% (0% EAR variable p.a on first £250, 39.9% thereafter).
  • Interest-free overdraft
  • Award winning customer service
  • No monthly fee
  • Link to savings account
  • Interest-free overdraft is only up to £250
  • No interest paid on in-credit balances
  • Cannot bank in branch
Interest rate 0%
AER

Minimum opening balance £0
Minimum operating balance £0
Switch service guarantee Yes
Account fee £0
Overseas card transactions 2.75%
Overseas cash withdrawals 2.75%

Starling Bank - Current Account - Age 18 and over

£0

Minimum opening balance

£0

Account fees

0.05% AER

Interest (AER)

No fees overseas.
This online-only current account offers free ATM withdrawals abroad, alongside fee-free spending when overseas. The smartphone app which customers use to manage their account contains a wealth of features, including an analysis of your spending, the ability to freeze your debit card if it is lost or stolen, and instant notifications every time you spend money. Customers can pay in cash via the Post Office. Meanwhile, cheques can be cashed via the “Cheque Deposit” feature within the app. Account holders can also easily transfer money to their friends using the “settle up” and “pay nearby” features.
Representative example: If you use an arranged overdraft of £1,200 you'll be charged interest at 15% EAR variable .
  • Free UK current account, usually up and running in a matter of minutes. Card delivered within a week.
  • Slick mobile app packed with budgeting and saving features, including spending categorisation and saving goals.
  • Safe and secure, fully licensed by the FCA and PRA.
  • While Starling offers a wide range of services, it’s still a fairly new bank, so does not yet offer more complex services such as mortgages.
  • There aren’t any bank branches, but you can use the Post Office to deposit and withdraw cash.
Interest rate
0.05%
AER

Minimum opening balance £0
Minimum operating balance £0.01
Switch service guarantee Yes
Account fee £0
Overseas card transactions £0
Overseas cash withdrawals £0

What is an overdraft?

An overdraft is a feature of your current account that allows you to continue spending even once you’ve exhausted all your available funds.

Since you’re effectively borrowing money, you’ll usually be charged interest and/or a fee for it. Overdrafts can turn out quite expensive, so you should only use yours in case of emergency. However, they can be handy if you need just a few extra quid to make it to the end of the month.

Most full current accounts come with an overdraft option included or allow you to apply for one.

Arranged vs unarranged overdrafts

There are two types of overdrafts:

  • Arranged overdrafts. That’s when you apply and are approved for an overdraft by your bank. You’ll be able to borrow up to a set limit. Arranged overdrafts are less expensive than unarranged overdrafts, but still not free (more on this below).
  • Unarranged overdrafts. That’s when you haven’t agreed to an overdraft with your bank and still overspend, or when you spend more than your overdraft limit. Unarranged overdrafts come with a scary series of fees, so you really, really want to avoid them.

How to apply for an overdraft

Most current accounts will ask you if you’d like an overdraft facility when you initially apply. You can get it then, or apply for one later on.

You can typically apply for an overdraft online or from your banking app. You’ll be asked what is the arranged overdraft limit you’d like and will usually be credit checked. If you pass (the credit limit you’re approved for may be lower than what you asked for), you’ll then be able to use your arranged overdraft.

Overdraft fees

As we said, before using your overdraft, you should make sure you’re fully aware of how much it’s going to cost you. There are many different fees to take into account and they can quickly add up to a fairly significant sum.

  • Fees for accessing an overdraft facility. This isn’t super common, but with some banks, you’ll be charged just for having an overdraft facility on your account, even if you don’t use it.
  • Fees for arranged overdrafts. Arranged overdrafts are typically charged a daily or a monthly fee and/or an interest rate. Things are especially tricky with fixed fees because you could end up paying quite a lot even if you’ve only gone overdrawn a few pounds.
  • Fees for unarranged overdrafts. According to the Financial Conduct Authority (FCA), “in some cases, unarranged overdraft fees can be more than ten times as high as fees for payday loans”. Again, they may include daily or monthly fixed fees, and even a transaction fee that’s charged every time you make a payment with your debit card or pay a direct debit while you’re overdrawn.

The FCA has announced new overdraft rules that will be enforceable from 6 April 2020. After that, banks won’t be allowed to charge more for unarranged overdrafts than for arranged ones or to charge fixed fees (only an annual interest rate). But until then, unfortunately we’re stuck with complex fee structures that would frustrate any sensible human being, so make sure you know what you’re getting yourself into if you want to use your overdraft.

Is a current account with an overdraft a good idea?

In theory, there’s no harm in at least applying for an overdraft facility and having it on your bank account. It can be a life saver if something happens and you have to deal with an emergency. However, if you do it, you need to be aware of the catches:

  • It’s an expensive form of borrowing. Yeah, we know, we’ve said it already. But hey, just in case you forgot.
  • Different kinds of fees usually apply. They can pile up quickly, so you need to read the terms and conditions carefully.
  • Be especially careful if you have more than one current account. If you spread your money between different accounts, you may accidentally end up using your overdraft even if you don’t actually need it.

Ultimately, it all comes down to how much your bank charges. There are current accounts out there offering decently priced overdrafts that can be really helpful if you need a bit of extra cash at times.

Can you switch current accounts with an overdraft?

Yes, you can. Having an overdraft won’t stop CASS (the current account switching scheme) from doing its thing and transferring your direct debits and payments to your new bank while closing your old account. If you had an overdraft with your old bank but weren’t using it, you don’t have to do anything except apply for an overdraft with your new bank if you still want it.

Things are a tad more complicated if you were using your overdraft and your old account was in debt. You have two main options:

  • See if your new bank will accept your overdraft. If it does, you’ll be able to transfer it directly from your old account. Just make sure you’re not getting yourself a worse deal.
  • Pay off your overdraft. If your new bank doesn’t agree to transfer your old overdraft, you’ll have to pay it off. Get in touch with your old bank to agree on how to do so. If money is tight, keep in mind that your new bank may still be willing to offer you an overdraft even if it doesn’t allow you to transfer your old one (it’s worth asking/applying).

How to compare bank accounts with overdrafts

If you’re looking for a bank account with an overdraft, it’s important to consider how often you’re likely to use your overdraft and how much you’ll be charged for doing so.

Some bank accounts will offer an interest-free overdraft for the first 12 months, for example, which could be a good option if you only need it for a set period, or you have an existing overdraft you need to pay off.

Others, however, will offer a small interest-free buffer to act as a safety net as and when you need it. If you are likely to go over this buffer, make sure you compare exactly how much you’ll be charged for doing so and look for the most competitive option.

Alternatives to overdrafts

Overdrafts are definitely not your only option when it comes to borrowing:

  • Credit cards. If you often end up overspending one month only to make up for it the following one, getting a credit card is much better than dipping into your overdraft. As long as you clear your balance in full every month, you won’t be charged any interest.
  • Personal loans. If you already know you’re going to have to borrow money in the near future, or are looking to fund a medium-to-long-term project, there’s really no point in relying on your overdraft. A personal loan will probably be more suitable for your needs.

Finally, if you find yourself overusing your overdraft, maybe the time has come to do a bit of budgeting and reorganise your finances. If it sounds like a daunting task, why not try a budgeting app? For example Money Dashboard is free and does the job more than adequately.

Pros and cons of a bank account with an overdraft

Pros

  • Some overdrafts are interest-free up to a set limit.
  • If used sensibly, an overdraft can help improve your credit score.
  • Overdrafts are flexible, allowing you to borrow what you need when.
  • Overdrafts are quick to arrange.
  • There is no set repayment term.

Cons

  • Interest rates can be high.
  • If you regularly exceed your overdraft limit, this can negatively impact your credit score.
  • Your overdraft is not guaranteed and can be cancelled at any point.
  • Borrowing limits are usually lower compared to other forms of credit such as credit cards and loans.

Bottom line

An overdraft can be a handy addition to your bank account and can offer a valuable safety net in the event an unexpected payment pushes you into the red, for example. Applying for an overdraft is usually straightforward and there are a few low cost options available.

However, it’s important to stay within your overdraft limit and try to pay back the amount borrowed as soon as possible. Otherwise, the more you rely on your overdraft, the harder it will become to get out of it.

Frequently asked questions

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.

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