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.
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.
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.
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.
If you decide to switch your whole account across, follow the steps below:
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 26 November 2024.
For more information about how to switch, head over to our switching deals guide.
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.
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.
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.
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.
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.
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.
If you don’t switch using CASS, follow the steps below:
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.
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.
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.
Once you’ve completed your transfers and paid off or transferred your overdraft, you can close your old bank account if you wish to.
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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