An overdraft is a feature of your current account that allows you to continue spending even once you’ve exhausted all your available funds.<\/p>
Since you’re effectively borrowing money, you’ll usually be charged interest for it. Overdrafts can turn out quite expensive, with many banks charging annual interest rates of around 40%, making it a more expensive option than many credit cards.<\/p>
Some banks offer a 0% overdraft in order to entice new customers in, but this ‘free’ borrowing facility usually lasts for a fixed period, or it only applies to a relatively small sum. For example, the First Direct 1st Account<\/a> offers a \u00a3250 interest-free overdraft buffer. But if you exceed this amount, you’ll pay interest. <\/p> This means you should only use an overdraft as a short-term solution or in case of emergency. They can be handy if you need just a few extra quid to make it to the end of the month.<\/p>