Being into your overdraft does not mean you are tied to your bank account forever. You can still switch to a better deal. We explain how.
Yes. As long as you have a reasonably clean credit history and you have stayed within your overdraft limits, other banks will generally be happy to accept your custom.
After all, if you are overdrawn, they will profit more from having you as a customer.
That does not mean you will be able to take your pick of the current accounts available with overdrafts, however. Most of the market-leading accounts are for those with excellent credit scores and no existing overdraft debts. But there are still plenty of options on offer so be prepared to do your research and pick an account carefully.
If you are overdrawn already, it’s possible that your sole aim in switching accounts is to cut how much you pay in interest and bank charges. In that case, it’s important to establish what you are paying now before you start looking at what you can get elsewhere.
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 being overdrawn?
Are you happy with online banking, or do you want a branch-based service?
Do you need a cheque book?
Is it essential to have all the extras, such as a sweeping service, mobile banking or a dedicated app?
Once you work out what you have, and what you need from a new account, you will be able to start your search.
Overdrafts are designed for short-term borrowing and can be costly if you use them for any other reason. However, new rules introduced in 2020 have made the cost of overdrafts a little clearer to understand. This also makes them easier to compare when you’re trying to work out which account is best for you.
The interest on all overdrafts is now charged at a single interest rate, shown as the APR (annual percentage rate); there are no longer any daily or monthly fees if you use your overdraft, and there’s just one charge for using an arranged or an unarranged overdraft.
There are plenty of options, so you should be able to find one that will cut the cost of your overdraft and suit your banking habits.
Look at the fine print of any account carefully to ensure you are eligible for it and that you are aware of all the fees and charges that apply.
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.
If the bank or building society is signed up to the Current Account Switch Scheme (CASS), which most big providers are, there’s also a guarantee that all current direct debits and standing orders will be automatically moved over within seven days – without you having to do anything.
As part of the switch, you are likely to be asked how big your current overdraft is. Many accounts will match your current limit, providing you are able to prove it. This may involve taking a bank statement or some other proof of your overdraft limit into a local branch.
If you’ve done your homework, once you have moved your account and overdraft facility, you should start paying less in interest and charges. The next step should be paying off your debts as quickly as possible. The lower charges should mean you have more money to clear the debt at a faster rate.
It's always worth seeing if you can get a more competitive deal on your current account. There's no point in moving your overdraft to a new account unless the new deal is better.
Even if you find the perfect bank account to move your overdraft to, there is no guarantee you will be able to do so.
It is up to the new bank to decide if they will accept you, and they may turn you down if you are heavily overdrawn or have been in the red for a long time.
If your credit history is not up to scratch, you may find that a new account provider is not prepared to offer you an overdraft of the size you need.
If you are accepted, you still have to make sure that your chosen account can accommodate your current overdraft.
For example, if you are currently overdrawn by £1,000, but your new account is only willing to offer an overdraft limit of £500, then you need to rethink your options - including just transferring half of the outstanding balance.
If you have sufficient savings, it may be worth considering using these to clear your overdraft, especially if you are paying more interest on your overdraft than your savings are earning.
Overdrafts are designed for short-term borrowing, so unless your new overdraft is interest-free, the chances are that you will be paying a significant amount in interest or charges.
Read our guide to find alternative ways to pay off your overdraft.