> Bank Accounts
> Current Account With Overdraft - UK Guide
In a nutshell
A current banking account that comes with an overdraft facility built in.
Best Bank Account For
Anybody can benefit from having an overdraft attached to their current account to help cover them if they need extra cash.
The majority of current accounts that come with an overdraft are simply accounts with a built in line of credit in case you need to use it. So, your bank may give you a 'free' overdraft of £250 as standard when you open your current account and you can arrange higher levels if you wish (and they allow).
You may never need this overdraft facility but it won't do you any harm to have it as it will only cost you money if you choose to use it. And, you'll often find that some months things can get a bit tight financially - so having an overdraft already set up on your account will save you time and make it much easier to manage financially. If it's already part of your current account then you can simply carry on spending even if you have used up all your credit balance. This gives an element of extra flexibility to your monthly spending. And, as soon as you pay money into your current account again it will go straight towards paying off the overdraft so you'll actually use the facility for as short a time as possible. In most cases current accounts come with an overdraft that won't charge you a penalty fee for becoming overdrawn - this is the 'free' part of the overdraft. You will pay interest if you do use your overdraft, however.
What to look out for
The majority of current accounts with overdraft facilities will come with pre-determined overdraft limits. These limits are usually - but are not always - in the form of a 'free' overdraft. So, you'll have to pay interest on any of the overdraft you use but you won't be charged otherwise for using it.
Some banks will even allow small overdraft use with no interest charges at all for certain accounts or may special deals for certain sectors of the population such as students and graduates. It's certainly worthwhile making sure that your overdraft facility is set up to suit you as much as possible with your current account. You need to be aware that, if you exceed your 'free' overdraft limit, then you may very well be charged extra penalty fees and costs as well as the interest that may be due. Overdraft borrowing is hardly the cheapest lending option in the sector - this is not so much of a problem if you only become overdrawn for small amounts or on an infrequent basis. But, if you find that you're using your overdraft regularly then you might be better off financially with a lower cost loan to get back on your feet again.
And, it's very easy to overspend simply because you have an overdraft - many people forget that it isn't really their money at all even though it's attached to their current account. What you don't want to happen is to have your salary paid into your current account at the start of the month and to see it all used to pay off your overdraft so you have to start borrowing on it all over again.
A current account with overdraft is the best option if you think you might need occasional short-term help with your day to day money management.