Category: Overdrafts

Should I Swap Banks to get a Better Overdraft Rate?

Most banks will offer an overdraft with their current account. The rates that they charge for those overdrafts will vary wit many having an interest rate of between 35% and 40%. If you find a bank which has a lower overdraft rate than the one that you are with, then you might be tempted to switch to it as opposed to the one that you are with. However, there might be consequences in doing this and so it is a good idea to check it out thoroughly before you make the decision.

Interest Rates

The interest rates are probably something which is really obvious and you will focus on them. If you have a rate that is significantly higher than other places then you will be thinking about swapping to them. This is a good idea if you use your overdraft regularly. This is because your overdraft will be costing you a lot of money and if you can reduce the amount that you are spending then you will be able to pay it off more quickly and save money. Therefore it can be better to consider moving your account to one that has a lower rate if you use your overdraft a lot. If you never use your overdraft, then this will not be such an issue unless you feel that there might be a chance that you will need your overdraft at some point and then it could perhaps be useful to consider getting a cheaper one.

Other Features of the Current Account

Before you change though, you will need to think about the other benefits that you get for having this particular account. It could be that you pay some money for your current account and that means that you get all sorts of benefits for doing that. It could be worth thinking about whether that makes it better value for money despite the interest rates. You also need to think about other features that you might get as part of your account. Perhaps you get online banking, you have a local branch you can use, you can print statements on a machine in branch, you get higher interest on your savings account because you have a current account and things like this. It is good to think about what the worth of these things is as you might want to use them and if they are not available in the account you are considering switching to then you may decide that in the end it is not worth switching to them.


You may also be concerned with the reputation of the bank. It is a good idea to think about whether you are interested in this and what the bank is like. You will need to think about the features of a bank that might be important to you. For example, you might be concerned about whether they have a good reputation, whether people you know recommend them, whether you have heard of them, if you have used them before and things like this. There are lots of different possibilities that you might feel are important when you are choosing a bank and it is a good idea to think about what you feel is important to you. You may not worry about any of it, you may just have a few requirements or there might be lots of things that are really important to you. It is well worth considering this and then you will be able to put these factors together with what you want form the account and then compare the interest rates to see which account you think will give you the best value for money.

How Expensive are Overdrafts?

Many of us have an overdraft associated with our current account. These allow us to get our hands on more money than we actually have if we need it. So, we will be able to use a cheque, direct debit, transfer or cash withdrawal to get the money from our overdraft. This can sound pretty handy but there are costs. It is a good idea to have a think about the costs to make sure that you make wise decisions when you are thinking about whether you use your overdraft facility or not.


The way overdrafts are charged for in the UK has recently changed in order to make it easier to compare the different banks. It used to be the case that there were different types of overdrafts (authorised and unauthorised) with different costs but this is not the case anymore. Due to a change in the law to make things easier for borrowers all overdrafts have just the one cost and that is the interest that is charged on them. There are no fees and charges to confuse matters, you just have to pay interest. This interest rate will vary between the different lenders but it tends to be between 35% and 40%. This sounds high and this is because it is. It is the interest rate for the year, which means that if you have a £100 overdraft for a year, you will be charged £40 across the year which would be £3.33 a month. It seems pretty small when you look at the monthly figure, but you can see also, what the impact is of keeping the overdraft for a long time.


Overdrafts do not have a repayment schedule. They will be repaid when money is put into the current account that the overdraft is on. This means that whether you get paid a salary, benefits or some other money goes into the account, it will repay some or all of the overdraft. This means that if you are operating a normal current account, that you are likely to repay some or all of what you owe when you get paid, which will probably be monthly. This means that it is quite easy to repay and not something that you will need to remember to do. However, it also means that it is easy to forget to pay it off as well.

There are some people that will not repay their overdrafts and use them like a personal loan. They will take out a second current account for their salary to be paid in to and leave the overdraft just accumulating interest all of the time. This might seem like an easy way to get some money but it is something that you should think very strongly about. You will be paying that interest all of the time and it is a really high amount. There are ways to borrow money which have much cheaper interest rates and so it can be a good idea to look into these rather than trying to keep an overdraft for a long time. You will usually find that a personal loan will be cheaper than this and a credit card might even be a cheaper way to borrow.

With other methods of borrowing you are encouraged to repay some of what you owe. This can help you to make sure that you do not stay in debt for too long. With an overdraft this does not happen and that means that you could keep owing the money for a very long time and building up those interest charges. It can cost you a lot of money and is therefore not a wise idea.