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

Regulators are forcing banks to make overdrafts simpler, but most will still be expensive. Here's how to pay less.

Overdrafts are set to change by 6 April 2020 once proposed rules by the Financial Conduct Authority (FCA) come into force.

Last December, the FCA outlined several proposals aimed at ensuring overdrafts will have a simple, single interest rate (so, no fixed daily or monthly charges).

Other proposals include:

  • Firms will be prevented from charging higher prices for unarranged overdrafts;
  • Fixed fees for overdraft borrowing will be banned;
  • Arranged overdraft prices must be advertised in a standard way, including an APR so people can compare deals more easily;
  • Refused payment fees must reasonably correspond to the cost of refusing payments (the same will apply to other administration fees);
  • Pushing banks to do more to identify customers who are exhibiting signs of being in financial difficulty, and to find ways to help them reduce their use of overdrafts

Those rules are set be introduced by 6 April 2020, apart from guidance on refused payment fees, which has already taken effect.

Measures to help customers use their overdraft less will come into force on 19 December 2019.

But the new rules won't cap the cost of an overdraft.

While the FCA estimates that simpler pricing will cause the costs of overdrafts to fall from £5 a day to less than 20p a day, it's possible to pay £0 – yes, zero – for your overdraft.

That's because a number of banks offer free arranged overdrafts.

Banks should notify you if you go into your overdraft as you may get charged. You can opt out of these notifications, which we do not recommend as these can be handy.

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

Best bank accounts for free overdrafts

Please note all of these offers are for arranged overdrafts only.

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)

First Direct 1st Account



15.9% EAR

M&S Current Account



15.9% EAR

Club Lloyds


Depends on individual circumstances


Nationwide FlexDirect




Santander Everyday Current Account**




Santander 1|2|3Current Account**




*You’ll be charged 39.9% EAR (variable)after 11 November and the £10 fee-free buffer will be removed

**You'll need to use the Current Account Switching Service to switch to this account. Note that the 1|2|3 account has a £5 monthly account fee.

First Direct 1st Account

The clear winner, First Direct offers an ongoing £250 fee-free arranged overdraft.

That should be enough to deal with the odd unexpected bill.

Beyond that point, its overdraft charges are still relatively low at 15.9%.

It's also helpful that First Direct's customer service is consistently rated as excellent.

The account is now fee-free for everyone and you'll also gain access to a 5% regular saver.

If you use the Current Account Switching Service, you can get £50 cash for joining First Direct.

You can apply for the First Direct 1st Account here

M&S Bank Current Account

The M&S Bank Current Account comes with an ongoing fee-free arranged overdraft of £100.

After that point, you'll pay a relatively low 15.9%.

M&S bank account (image: Shutterstock)

This account has no monthly fee and you'll also have access to a 5% regular saver.

Right now, you can get a £100 M&S gift card for switching to the account and £80 M&S git card when you stay for 12 months.

Lloyds Bank Club Lloyds

The Club Lloyds current account has a £300 fee-free arranged overdraft for three months.

Be warned that, beyond this point, Lloyd's overdraft fees are notoriously complex.

The account comes with a range of perks like in-credit interest of 1.5% on balances between £1 and £5,000 (if you 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 or an annual Gourmet Society membership.

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.

Nationwide FlexDirect account

However, you'll need to know that you can pay off your overdraft by the end of the 12 months, or be prepared to pay the 50p a day fee.

This account is free and has access to a 5% regular saver.

But you'll need to know that you can pay off your overdraft by the end of the 12 months or be prepared to pay the 50p a day fee, which will change to 39.9% EAR in November.

This account is free with access to a 5% regular saver.

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.

You can apply for the Nationwide FlexDirect account here

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.

You can apply for the Santander 1|2|3 account here and the Everyday account here.

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 daily fees.

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

Avoid going into an unauthorised overdraft at all costs, as you'll soon rack up high charges and daily fees.

Unauthorised overdraft fees will be priced the same as authorised ones by next April, but these fees can still sting customers until the FCA’s changes are fully enforced.

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.

Don't need a free overdraft? Compare other current account perks on loveMONEY

This article is regularly updated

More on banking and borrowing:

Letters to creditors

How to save money on international money transfers

Credit unions explained


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