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.<\/p>
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. <\/p>
For example, if your bank balance is \u00a30 but a payment goes out for \u00a350, you’d go into your overdraft by \u00a350, giving you a balance of -\u00a350.<\/p>
Because the money is borrowed, you need to pay it back as soon as possible, and interest is usually charged on top. <\/p>
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.<\/p>
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. <\/p>
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. <\/p>
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. <\/p>
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. <\/p>
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. <\/p>
If you decide to switch your whole account across, follow the steps below:<\/p>
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. <\/p>
Make sure you check if there are any switching offers currently available as you can get rewarded when making a switch.