Being in your overdraft doesn’t have to mean you’re tied to your bank account till kingdom come. It is still possible to switch to a better deal. We show you how.
Once upon a time moving bank accounts could almost be likened to moving house for all the time and hassle it entailed, but these days moving your account is overwhelmingly simple.
Despite this, many mistakenly believe that while you are 'in the red', you can’t move accounts without first paying off your overdraft - and so stick with accounts that charge them huge amounts in interest and charges.
It is, however, possible to move your account to a new home while taking your overdraft with you - you just have to do your research first.
Can I really switch current accounts if I'm in my overdraft?
Yes. As long as you have a reasonably clean credit history and have stayed within your overdraft limits, other banks will generally be happy to accept your custom. After all, if you're in your overdraft you'll be a profitable addition to their customer-base.
That's not to say that you'll be able to take your pick of the overdraft current accounts available. You'll need to do your research and pick an account carefully.
What do I need to look for in a new account?
If you're in your overdraft the sole aim of switching accounts is likely to be to cut the amount you're paying in interest and/or charges. As such you'll need to establish what you're paying now before you start looking at what you can get elsewhere.
First look at the terms and conditions of your current account; how much interest are you being charged on your overdraft? What is your overdraft limit? How much of your overdraft are you using? How much are you paying in fees for the overdraft?
You'll also need to consider what other features are important to you in a current account. Are you happy with online banking, or do you want a branch-based service? Do you need a cheque book? Is a sweeping-service or mobile banking facility a must?
One you establish what you have, and what you need from a new account, you'll be able to start your search.
How do I find my perfect overdraft current account?
You can use our overdraft current account comparison tables to search for the account that will cut the cost of your overdraft and suit your banking habits. Use the 'Advanced Search' to state exactly what you want from your current account and you'll be shown a list of options that match. All you need to do then is to compare the details and pick the one that best suits.
Make sure you look at the fine print of any new account very carefully - especially the application criteria - to ensure that you'll actually be eligible for the account and that you're aware of all the fees and charges that apply.
How do I move my overdraft?
Once you have found a new account that you want to move to, most of the hard work on your part will be over; most accounts come with a switching service to make the transfer as smooth and pain-free as possible.
As part of the switch you're likely to be asked how big an overdraft you have now. Many accounts will match your current limit, providing you're able to prove it. This may involve taking a bank statement, or some other proof of your overdraft limit into a local branch.
What happens once the switch is made?
Once you've moved your banking - and overdraft - from one account to another you should be paying less in interest and charges which is obviously a good thing. Now you've made your overdraft as cheap as possible you should focus on paying it off as quickly as you can.
What do I need to watch out for?
While it’s always worth looking at your options and finding out if you can get a more competitive deal on your current account, remember that there’s no point in moving your overdraft to a new account unless you are categorically getting a better deal for your money – i.e. a lower interest rate or even an interest-free deal on the overdrawn balance, or lower fees.
It’s also important to mention that even if you find the perfect bank account to move your overdraft to, there’s no guarantee you’ll be able to do so. Whether or not the new bank account will accept your overdraft is down to their discretion and they may turn you down if you have a very large overdrawn balance or if you have been in your overdraft for a long time. You also may not be accepted by the new bank if you have made a habit of going over your overdraft limit in the past.
An overdraft is a form of credit after all, so if your credit history isn’t up to scratch you may find that a new account-provider isn’t prepared to offer you an overdraft of the size you might like.
If you are accepted you’ll still have to make sure that the account you wish to transfer to can accommodate the overdrawn balance you want to transfer. For example, you may have £1000 of overdraft debt to transfer but your new account is only willing to offer an overdraft limit of £500. In this case, you may need to just transfer half for now or consider a different option.
What's the alternative?
Unless your new overdraft is interest-free the chance is that you'll be paying a significant amount in interest or charges. Because they're only designed for short-term borrowing the cost tends to be comparatively high.
As such it's worth looking at alternatives such as using a 0% balance transfer credit card that allows money transfers to cut the cost of your borrowing.
Of course, if you have sufficient savings, it's always worth considering using these to clear your overdraft if you're paying more in interest on your overdraft that they're earning.
