Best Current Accounts With Overdraft

We've reviewed the best overdraft current accounts in the UK…

Updated: May 18, 2024
Matt Crabtree

Written By

Matt Crabtree

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When funds are low, the last thing you need is an overdraft fee. When used correctly, though, it can be helpful in a tight pinch. 

An overdraft is a predetermined credit line tied to a current account. It's convenient for day-to-day spending since you can access the funds whenever you need them, giving you greater control over your financial flow.

Loans should be considered more suitable for long-term finance. Overdraft fees are usually higher than those for a loan used for a major purchase.

However, we have identified the best overdraft current accounts available right now to assist you with more immediate needs.

ProviderScoreDetails
1. Santander★★★★★Learn more
2. First Direct★★★★★Learn more
3. Starling Bank★★★★★Learn more
4. Monzo★★★★★Learn more
5. Co-operative Bank★★★★Learn more
6. Smile★★★★Learn more

At a Glance, Pros and Cons

Let’s quickly delve into some pros and cons of the best current accounts with overdrafts in the UK, starting with… 

Pros  

✅ Adaptable in comparison to traditional loans.

✅ Save money by borrowing only what you need.

✅ Easy to set up.

✅ Often no penalty for prepaying a loan.

✅ Overdrafts may be secured against company assets if the borrower has bad credit.

Cons 

❌ There is often an arrangement charge associated with extending your overdraft.

❌ If you go over your overdraft limit without the bank's permission, you may incur fees.

❌ The bank may demand repayment of your overdraft at any moment, but that won't happen unless you're having serious money problems.

❌ Overdrafts can only be obtained through the financial institution where you have your regular checking account, unlike loans. And your business must change banks in order to qualify for an overdraft.

Top current accounts with overdrafts — Reviews

Top Tip: As a general rule, interest rates fluctuate, making it hard to predict how much you will pay to borrow money. Keep in mind that if you go into financial trouble, your overdraft limit may be lowered suddenly even if you haven't used it.

Our top picks are as follows: 

Account NameMonthly FeeInterest (AER)Overdraft (EAR)
1. Santander Everyday Current Account£0N/A39.94% APR/ EAR (variable)
2. First Direct Current Account£0Access to 7.00% AER/gross Regular Saver account39.9% EAR (variable) on anything above £250
3. Starling Bank Current Account£03.25% AER up to £5,00015%, 25%, 35% EAR (variable) – Subject to status
4. Monzo Current Account£0Up to 4.92% (AER/Gross fixed), £500 minimum deposit to open (locked for 6 months)19%, 29%, 39% EAR (variable) – Subject to status
5. Co-operative Bank Standard Current Account£0Variable (access to some exclusive savings accounts)35.9%
6. Smile Current Account£0Variable (access to some exclusive savings accounts)35.9% up to £500 credit limit

1. Santander — Dependable overdraft account for anyone earning more than £15k annually

Santander is at the top of the list.

On the list of top current account providers compiled by Compare Banks, Santander ranked an impressive third. It's a great package, but you need to deposit at least £1,000 a month to get access to this account.

For those making over £15,000 a year, this shouldn't be too much of a concern, since salary contributions should be enough to meet this need. 

However, it may be difficult for people whose wages fluctuate.

You could do a lot worse than Santander's recommended overdraft rate account if you're still reading this. For the time being. Interest on overdrafts is waived for the first year. The rate after the first year is 12.9%, which is still below the market average for loans of this kind. Nonetheless, Santander is now in the process of modifying its overdraft policy. 

In December, the new fees will be implemented. A Santander representative has said that the bank has not decided whether or not to provide a preferential overdraft rate account. In any case, this is a good account to look into if you need a quick fix.

Keep in mind, too, that consumer satisfaction is poor at Santander. Recent years have witnessed a flood of complaints, with ISA transfer issues being among the most notable. For example, Which? magazine readers rated it the lowest in their poll at 48% for satisfaction.

Best for 💡 those with annual incomes of above £15,000.

2. First Direct — Customer reviews rank First Direct as the best overdraft checking account

You've probably had enough of hearing about how First Direct would offer you £100 if you move to them.

It's never going to be as easy as 1, 2, 3, but that just makes it more tantalising. If you're searching for an overdraft facility and are presently banking elsewhere, it's a good place to start, especially considering the 89% customer satisfaction rating ⭐ from Which? Magazine. Once again, your payment must be over the minimum required. 

Top Tip: If you make less than £23,000 a year, you should probably look elsewhere. The minimum monthly deposit is £1.5k.

There are benefits to be achieved if you meet the requirements. The first ‘buffer' of £250 is provided to you without interest. Unlike with Santander, this is not a ‘bonus' that expires after a year but rather a standard feature of the account, and there are no indications that this will alter in the near future. 

When you go above the £250 maximum that you and First Direct have agreed upon, you will be charged 15.9%. Again, this is far lower than what you'd pay at any of the High Street behemoths.

Ideal for those whose balances fluctuate just over the red zone🔺🔻.

3. Starling Bank — Lowest interest rates on overdrafts, starts at 15% EAR if your credit is good

Starling provides the lowest interest rates on overdrafts, starting at 15% EAR if your credit is good.

However, this assumes that your credit is stellar. Mobile-only and Internet-only banking Overdraft fees at Starling vary from 15% to 25% to 35% EAR, depending on the borrower's credit history.

Starling Bank uses a risk-based pricing model in which interest rates are provided to borrowers based on their perceived ability to repay their loans.

Customers who pay the lowest rate of 25% now pay £2.16 to cover a £500 overdraft for a week, while those who pay the highest rate of 35% pay £2.92. 

If approved, you may get an overdraft of up to £5,000. Before applying for the account, check your chances of being approved for an overdraft using the bank's eligibility tool.

Most beneficial for 💡 those who have high FICO scores. 

4. Monzo — Overdraft fees as high as 19% EAR

Overdraft fees on Monzo have increased from 50p per day to 19/29/39% EAR, depending on your TransUnion credit score.

Customers may borrow up to £2,000 from the bank. Overdraft limits may be adjusted at any time using the mobile app. You must repay the full amount of the overdraft, plus any applicable interest, to close the account.

Monzo works with TransUnion to determine the overdraft fee that will be charged to each account. If your credit score rises, it won't automatically lower your overdraft rate; you'll have to clear your balance and reapply for a better rate.

Best for 🏦: Customers that do most of their banking online. Before applying for the account, check your chances of being approved for an overdraft using the bank's eligibility tool.

5. Co-operative Bank — Best overdrafts for those with smaller incomes

This one is especially useful for those living on less. Co-op's overdraft services are quite generous, and all you need is £800 a month to qualify. The advantages? They offer a competitive 15.9% APR and a generous ‘cushion' of £200 in interest-free time.

Comparable to First Direct's offer, but less restrictive in terms of earnings, this product delivers exactly what it promises.

Many people are drawn to Co-op because of its commitment to socially responsible investing. For instance, in one survey from the website Which?, readers gave this product an 86 percent satisfactory rating.

The sweet spot 📆 is between £10,000 and £15,000 a year in income.

6. Smile — There are no salary criteria needed to join

The fixed interest rate offered by Smile is 15.9%, making it competitive with both the Co-op and First Direct.

But… this only applies to your first £500 in deficit spending. Anyone carrying a significant debt load should look elsewhere. There will be no overdraft fees (other than interest, of course) charged for the first 12 months.

And the greatest part? There is no low-income threshold. This is a universal account, then. With an 87% customer satisfaction rating, it is just slightly behind First Direct on our ranking of the top checking accounts.

Now for the snag. A yearly service fee of £20 will be imposed after the first year. Even though you'll have to set your own boundaries, the interest rate will remain at 15.9%. 

It's time to have another conversation with Smile and work out the details. If you don't pay attention and end up over your limit, you'll have to pay an additional £20 monthly and £20 per day in service fees. Painful.

The best provider for a fluctuating income 🚗.

The top current accounts with overdrafts — Buying Guide

Let’s explore these services further as a topic. 

How do overdrafts work?

An overdraft on a checking account is a simple method to get a loan. In the event that you accidentally fall into the negative throughout the month, most accounts have an agreed upon overdraft limit.

Many banks allow customers to go over their limit on an interest-free overdraft in order to support individuals who periodically run into financial difficulties. The cushion protects them from incurring excessive fees due to a brief setback.

In order to make sure that payments are paid even if there isn't enough money in the account, most banks provide interest-free overdrafts of about £500. Depending on factors including income, expenses, and credit history, the overdraft limit most individuals may negotiate with their bank is much greater.

However, overdrafts over the introductory 0% APR might incur exorbitant interest rates of up to 40% per year. Anyone who finds themselves utilising one often should look into other forms of borrowing to help save money and get out from under debt. 

If a customer's total payments are more than their overdraft, the payments will be denied and fees will be assessed.

What are my options for clearing my overdraft?

  • If you're in a tight spot, you could ask your bank to let you keep using your overdraft or to stop charging you interest.
  • Make frequent use of mobile and internet banking to maintain tabs on your balance and expenses.
  • If you're worried about going over your overdraft limit and incurring fees, sign up for SMS notifications.
  • You may adjust the dates that standing orders and direct debits are deducted from your account to coincide with your payday.
  • Change to a bank that costs you less or doesn't charge you any at all.
  • If you've racked up a large overdraft that you know you won't be able to pay off soon, transfer the balance to a 0% APR credit card; if you believe it would help you better manage your finances, create a simple checking account with no overdraft.

Read this Dave Ramsey guide to learn more about getting out of debt.

What are the steps to getting an overdraft checking account?

Step 1 ☑️

Get in touch with your bank and see whether an overdraft is something you can agree to. This way, you won't receive a nasty letter via the mailbox if you go overdrawn, and you can save more than 10% on your overdraft charge by getting a better rate.

What should I do? It's easy; just visit a nearby branch as soon as you can and talk to the manager about your possibilities. Naturally, their willingness to help is contingent upon the state of your credit.

Step 2 ✅

After you've done that, it could be time to look for a new bank. If you believe there's a good likelihood you'll need to use your bank's overdraft facility, you should use a current account that's tailored to overdraft transactions.

Overdraft fees and interest rates at some of the largest High Street banks may be exorbitant; with other, generally smaller brands, you may be able to have a little more wiggle room, albeit it may come at the sacrifice of other perks. It's a good idea to conduct some investigation.

Overdraft fees from the most popular high street banks average about 19.5%.

To help you get off on the right foot, we've sorted through the options and selected the five overdraft checking accounts that will provide you the greatest leeway. Each offers advantages that will appeal to a certain subset of consumers. Look down below and you'll see what I mean.

Step 3 🎫

It's time to open an account that suits your needs. Our aforementioned list is not exhaustive, but it should serve as a somewhat accurate representation of the landscape. We recommend keeping things as straightforward as possible when dealing with debt, thus we are not including any accounts that need a monthly charge.

It's important to keep in mind that our list does not include the value contributed (or subtracted) by excellent or terrible service and other variables, simply the financial advantages of the accounts. And this is something that may be fatal, as we all know. 

Before signing up for the Current Account Transfer Service., you should familiarise yourself with the terms and conditions that are acceptable to you by reading the relevant sections of our savings and banking website.

Leading current accounts with overdrafts: The Verdict

More and more people are learning about the potential returns on their money via interest. What's the best way to maximise the benefits of an overdraft?

Top Tip: A great word of wisdom with regards to using an overdraft is to avoid using it.

Overdrafts can still be a lifesaver if you're strapped for cash yet need to make an urgent purchase or pay a payment, but you should be aware that you may be charged interest or overdraft penalties.

This allows consumers to cover their immediate expenses and go back in the black once they get their salary at the end of the month. The amount of an overdraft that a person need is very variable, but a good starting point is to add up all of their recurring monthly expenses.

📖 Make infrequent use of it

Overdrafts are available to support those in temporary financial distress. However, anybody who uses their overdraft on a monthly basis, or even more often, may be setting themselves up for a serious financial crisis in the future.

In such a situation, it's crucial to take care of the issue before it worsens and causes a debt catastrophe. Avoiding an overdraft by keeping an eye on the account balance is essential.

One useful piece of advice is to get a mobile banking app and set up low-balance notifications. If finances prevent you from paying off the overdraft, you should consider switching to a cheaper way of borrowing and developing a strategy to do so as soon as feasible.

Related Guides:

FAQs

Are overdrafts a terrible idea?

What size overdraft can I get?

What happens to my credit score if I overdraw my account?

If I go into my overdraft, can I still move banks?

Do joined bank accounts qualify for overdrafts?

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