Cheap and free overdrafts: best current accounts for those who go overdrawn

The financial regulator has forced banks to make overdrafts simpler, but also gave the green light for them to introduce expensive rates. Here's how to pay less.

New measures to make overdrafts easier to understand with a simple, single interest rate have been introduced this year by banks following pressure from the Financial Conduct Authority (FCA).

Unfortunately, the FCA didn’t cap the cost of an overdraft, so many banks have decided to hike their rates, which is now allowed after months of investigation by the regulator.

The FCA believes that seven out of 10 overdraft users will be better off or see no change, but it’s worth flagging it is possible to pay nothing for your overdraft.

That's because a number of banks offer free arranged overdrafts – for the time being.

How do I get out of debt? Cheapest ways to pay off what you owe

Best bank accounts for free overdrafts

Below is a list of accounts that still offer an interest-free overdraft.

You should arrange an overdraft when you first set up the account.

In some cases, you'll need to use the Current Account Switching Service to be eligible for the fee-free overdraft.

As a final point, these accounts are by no means an answer to persistent debt problems.

If you find yourself constantly in the red and struggling to keep your head above water, it's time to get free debt help.

We've arranged this table first by the duration of the free overdraft and then by free overdraft limit.

Bank Account

Duration of free overdraft (months)

Assumed free overdraft limit

Cost if you exceed limit (arranged overdraft)

M&S Current Account



39.9% EAR

Club Lloyds



29.9% EAR

Nationwide FlexDirect



39.9% EAR

Santander Everyday Current Account*



39.94% EAR

Santander 1|2|3 Current Account*



39.94% EAR

*You'll need to use the Current Account Switching Service to switch to this account and there’s no interest charged for the overdraft for the first four months only. It’s also worth flagging the 1|2|3 account has a £5 monthly account fee.

M&S Bank Current Account

The M&S Bank Current Account comes with an ongoing fee-free arranged overdraft of £250 although after that point, you’ll pay a hefty 39.9%.

This account has no monthly fee and you'll also have access to a 2.75% regular saver account.

It’s worth noting that if you’ve been financially impacted by the coronavirus pandemic, you will not get charged interest on the first £500 of your arranged overdraft until 29 August 2020.

M&S bank account (image: Shutterstock)

Lloyds Bank Club Lloyds

The Club Lloyds current account has a fee-free arranged overdraft of £50 with a typical interest rate of 29.9% for over this amount.

The account comes with many perks like in-credit interest of 1% on balances between £1 and £4,000 and 2% for balances between £4,000 and £5,000, but you’ll need to pay out two separate Direct Debits every month.

You also get the choice of one lifestyle benefit like six free cinema tickets, an annual magazine subscription, annual Gourmet Society membership or 12 digital movie rentals.

You will need to pay in at least £1,500 a month in order to avoid a £3 monthly fee.

Nationwide FlexDirect

If you've got a good credit rating but know you've got a tumultuous year coming up, then Nationwide's account could be a good option.

That's because it provides a 12-month fee-free arranged overdraft.

The credit limit you'll get depends on your status but could be considerably higher (they give an example of £1,200) than the ongoing fee-free overdraft accounts discussed above.

However, you'll need to know that you can pay off your overdraft by the end of the 12-month period – otherwise be prepared to pay a high 39.9% in interest.

This account is free and offers 2% interest on balances of up to £1,500 for the first 12 months.

If you know you are likely to need to borrow money, then a 0% purchase card could give you far longer to pay off your debts.

Nationwide FlexDirect account

Santander 1|2|3 and Everyday current accounts

Both of these accounts offer a fee-free arranged overdraft for four months.

The bank gives an example of £1,200, but it may be less, depending on your credit rating.

But you'll need to use the Current Account Switching Service to move your banking to Santander.

For the 1|2|3 account, you must pay in a minimum of £500 a month to the account, set up at least two Direct Debits and it will cost you £5 a month.

The Everyday account is free.

Paying off your overdraft

If you only have a limited interest-free arranged overdraft period, like those offered by the Santander accounts, you'll need to have a plan in place to pay it off – or you'll start being charged interest.

For some top tips, read our guide to getting rid of your overdraft for good.

If you're struggling with your debts, there are plenty of places to get free, expert, confidential debt advice – we've listed them in Where to get free debt advice.

This article is regularly updated

More on banking and borrowing:

How to get an interest-free loan: cheap and free borrowing

The best 0% money transfer credit cards


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