If you regularly sit in your overdraft, you might be struggling to pay it off – particularly if you’re being charged a high rate of interest. But there are options open to you, as we explain.
What is an overdraft?
An overdraft lets you borrow money through your current account. It acts like a short-term buffer, giving you something to fall back on if you have no money left in your current account and a payment goes out.
For example, if your bank balance is £0 but a payment goes out for £50, you’d go into your overdraft by £50, giving you a balance of -£50.
Because the money is borrowed, you need to pay it back as soon as possible, and interest is usually charged on top.
An arranged overdraft is one you’ve pre-agreed with your bank, and you’ll be given a set overdraft limit. An unarranged overdraft is one that hasn’t been pre-agreed – it can also kick in if you exceed your arranged overdraft limit.
Having an overdraft can be handy if you only use it from time to time and always pay the money back quickly. But if you regularly use it and don’t pay it back fast, it can rapidly become expensive as interest rates are often high. If this applies to you, it could be worth looking for a cheaper option.
Is it possible to transfer overdraft money to another account?
Yes, you can transfer your overdraft to a new bank account, provided the new bank permits this and offers a suitable overdraft facility. You need an overdraft limit that at least matches the amount you’re currently overdrawn by.
Ideally you want to transfer to an overdraft with a lower interest rate, as this will make it easier to repay your debt. If the new overdraft isn’t any cheaper, it’s probably not worth carrying out the transfer.
You should also keep in mind that transfers aren’t guaranteed. Your request to move to a new bank account might not be accepted if your overdraft balance is high, you use it too regularly, or you have poor credit.
Do you need to switch your whole bank account over?
Not necessarily. Switching your whole bank account across using the Current Account Switch Service (CASS) is often the easiest option as it takes care of everything for you. But you may also be able to open a second bank account, and transfer your overdraft to the new account manually. It’s then up to you whether you want to move over other payments and close your existing account.
Step-by-step guide if you switch
If you decide to switch your whole account across, follow the steps below:
Step 1:
Research banks offering overdrafts
First of all, carry out a bank account comparison, looking at whether an overdraft is available, what the limit is, and how much interest is charged. Once you’ve established that, you can look at other features of the account, such as how the account can be managed and whether there are any benefits or rewards such as earning cashback or fee-free spending abroad.
Make sure you check if there are any switching offers currently available as you can get rewarded when making a switch.
Current switching deals
Below we have listed the latest switching deals on the market. This list is checked regularly and was last updated on 3 December 2024.
first direct – 1st account – Get up to £175
Santander – Everyday, Edge or Edge Up account – Get up to £150
Nationwide – FlexDirect, FlexPlus and FlexAccount – Get up to £175
Lloyds – Club LLoyds, Club Lloyds Silver or Club LLoyds Platinum accounts – Get up to £200
Next, check the eligibility criteria. You’ll need to be over the age of 18 and a UK resident in most cases, but you might also need to meet other criteria. If you’re not sure, give the provider a ring.
Step 3:
Compare overdraft costs
To make the switch worthwhile, you want an account that offers a cheaper overdraft than your existing one. Some banks offer a small interest-free overdraft, but charge a high rate on anything over this – First Direct, for example, offers a £250 interest-free overdraft and a rate of 39.9% EAR after that.
Others charge a lower rate on the whole overdraft – Starling Bank, for example, charges 15% EAR if you have good credit.
Step 4:
Apply for an overdraft at the new bank
Once you’ve chosen your account, you should contact the bank to check whether they will accept your existing overdraft. The new bank will want to know the value of your existing overdraft and may ask to see bank statements so they can assess how regularly you’ve been paying it off.
As part of the application, you will need to undergo a credit check so that your new bank can assess your creditworthiness. If your new bank is happy to offer you an overdraft, you should be able to make your switch through the Current Account Switch Service.
If your new bank won’t accept your existing overdraft, they may be able to provide facilities to help you pay off your overdraft. Otherwise you will have to make other arrangements to clear your overdraft with your existing bank.
Step 5:
Initiate the switch
Once you’re ready, you can go ahead and complete your current account application and use CASS to make the switch. You can choose your switch date, but you must allow at least 7 working days for the switch to take place.
Your new bank will take care of everything for you and transfer over your regular incoming and outgoing payments to your new account, as well as your remaining balance and, if agreed, your overdraft.
Step 6:
Pay off the old overdraft (if needed)
If you haven’t been able to transfer your overdraft across, you will need to make arrangements with your old bank, so that you can repay it. How this works will depend on your provider. They might agree to leave your account open until you have found a way to pay off your overdraft, or they might close it and ask you to repay the money another way.
Step 7:
Confirm closure of the old account
Once the switch is complete and your overdraft has been either transferred or paid off, your old current account can be closed. If you’ve transferred your overdraft, the closure is usually done automatically as part of CASS. But it’s worth checking this has been completed.
Step-by-step guide if you don’t switch
If you don’t switch using CASS, follow the steps below:
Step 1:
Open an account at the new bank
Compare bank accounts and choose the one that best matches your requirements. This should primarily be based around the account’s overdraft facility but you can also look for other rewards and benefits.
Once you’re happy, apply to open the account – you can usually do this online.
Step 2:
Manually transfer direct debits and payments
Because you’re not using CASS, you will need to manually transfer any direct debits and other payments you need to the new account. You will also need to inform employers and anyone else who might need to make regular payments into your new account of the new details.
Step 3:
Pay off or transfer the overdraft balance
If your new bank has agreed you can transfer your overdraft balance across, you can now do this. Otherwise you’ll need to pay off your overdraft with your old bank when you can afford to do so.
Step 4:
Close the old account (optional)
Once you’ve completed your transfers and paid off or transferred your overdraft, you can close your old bank account if you wish to.
Bottom line
Transferring your overdraft to a new bank account has the potential to reduce the amount you pay in overdraft charges. However, you need to compare accounts carefully and remember that a new bank doesn’t have to accept your existing overdraft – though many will.
If you’re struggling to pay off your overdraft, you could also look into taking out a money transfer credit card or personal loan to help you.
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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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