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The best bank accounts to go overdrawn

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We run through some of the best current accounts for people who regularly slip into debt.

Current account overdrafts are a financial necessity for many. For some, they act as that emergency pot of money to dip into should the car need an MOT or the boiler need fixing. For others, they’re a lifeline seeing them through to payday.

If you find yourself slipping into your overdraft regularly, you’re not alone. Of the 52 million people in the UK with a personal current account, around 19 million use an arranged overdraft and 14 million use an unarranged overdraft every year, according to estimates from the Financial Conduct Authority (FCA), the regulator.

Firstly, it’s important to note the difference between arranged and unarranged overdrafts. With arranged or authorised overdrafts, you agree a borrowing limit with your bank in advance. However, with unarranged or unauthorised overdrafts, you spend more than you have in your account without first agreeing a borrowing limit, or you spend above your arranged overdraft limit.

Both types of overdraft can come with fees, but unarranged overdrafts typically cost more. In fact, some fees are so extortionate that the FCA announced plans in December to overhaul overdraft charges, after it found some unarranged overdrafts cost customers 10 times more than controversial payday loans.

Until then, if you do find yourself slipping into the red you can dodge sky-high fees by choosing a current account that offers an interest-free overdraft. But remember, these deals are for arranged for overdrafts only.

Here are some of the best deals out there if you go into your overdraft by just a small amount:

First Direct 1st account

You’re charged no interest on the first £250 of your arranged overdraft and then a 15.9% effective annual interest rate (EAR) on anything above that. There is no arranged overdraft fee.

The account is free for the first six months. You’ll then be charged a £10 monthly fee unless you pay in at least £1,000 a month.

At the moment, you can get £100 cash when you open an account.

M&S Current Account

With this account, the first £100 of any arranged overdraft is interest-free. Overdraft interest is charged at 15.9% EAR on anything over £100 and up to any arranged overdraft limit.

Until 30 January, you’ll get a £100 M&S gift card when you switch and another £80 after a year.

TSB Classic

This account offers an interest-free and fee-free buffer of £35. If you borrow more, you’ll be charged £6 a month and 19.84% EAR.

Monzo Current Account

You are charged 50p every day your account is overdrawn by more than £20, up to a maximum charge of £15.50 a month. There is no interest charge. The £20 buffer applies whether you’ve got an arranged overdraft or not.

Starling Bank Current Account

Starling does not charge any unarranged overdraft fees, it just applies a percentage charge of 15% EAR. If your total overdraft interest charges are less than 10p at the end of any given month, they’ll waive the interest charge for that month.

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