If you’re interested in opening a bank account with an overdraft, you’re in the right place. In this article, we’re going to share everything you need to know about the options, limitations, and more.
This article is part of our free series on opening accounts in Europe, specifically with the best online bank account in Europe, which you can access now by clicking here – or continue reading to uncover what an ISA account really is.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- What Is a Bank Account With Overdraft?
- What Is an Overdraft Limit?
- What Type of Bank Accounts Offer Overdraft Limits?
- How Do I Open a Bank Account With an Overdraft?
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
What Is a Bank Account With Overdraft?
A Bank account with overdraft refers to a bank account with a short-term credit facility, known as an overdraft facility. An overdraft occurs anytime an account holder withdraws more than the available balance in their account. Overdrafts can be “arranged” or “unarranged” overdrafts, depending on whether the terms are agreed in advance.
Depending on the type of account you need, whether it’s the best joint bank account, business account, personal account, or a bank account with overdraft, it’s important to understand the terms and conditions of opening that account before applying.
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What Is an Overdraft Limit?
Overdraft limit refers to the amount of money a bank makes available to an account holder when their account balance has been fully depleted. Overdraft limits can be arranged or unarranged, which refers to whether the bank and account holder have predetermined a limit for overdraft protection.
In most cases, banks offer an interest-free buffer (or overdraft buffer), which is a period of time in which interest is not charged on the overdraft. If the balance of the overdraft is not paid off during this time, interest will then be applied to the amount “borrowed” through the overdraft.
Do Banks Have Different Overdraft Limits?
Yes, banks have different overdraft limits for each client. Like any other credit facility, overdraft amounts are determined by an applicant’s creditworthiness (credit score), income, expenses, and much more.
With this in mind, if you are looking for a specific amount of overdraft protection, you should contact each bank and ask for their requirements. This will help to achieve that level of overdraft protection before applying for an account.
What Type of Bank Accounts Offer Overdraft Limits?
The type of bank accounts that offer overdraft limits ultimately depends on the bank that you are considering opening with. However, generally speaking, current accounts, savings accounts, including ISA accounts can have overdraft limits.
With this in mind, let’s take a closer look at both current and savings accounts with overdraft protection followed by a discussion about how to open a bank account with overdraft.
Can You Open a Current Account With Overdraft?
Yes, you can open a current account with an overdraft. In fact, most major banks offer overdraft facilities on current accounts as long as the client is able to demonstrate creditworthiness through a reasonable credit score. That said there are additional eligibility criteria that you need to meet. This may include, not missing credit payments in the last six months, not going bankrupt in the last six years, and not having a court judgment in the last six years.
Can I Get a Current Account With an Overdraft in the UK?
Yes, you can get a current account with an overdraft in the UK. In fact, most major UK banks offer current accounts with overdraft protection to their clients. This includes both high-street banks like HSBC and Lloyds as well as technology-enabled banking options like Starling Bank.
Can You Open a Savings Account With Overdraft?
Yes, you can open a savings account with an overdraft facility. In fact, even if you do not have an arranged overdraft agreement in place it’s still possible that there is an overdraft on your savings account. However, it’s important to note that overdraft facilities are intended to be short-term credit facilities. That said, interest will start to accumulate if the overdraft on your savings account is not paid off.
How to Open a Bank Account With an Overdraft
Most major banks offer account holders overdraft facilities. In the UK, this includes banks like HSBC, Barclays, Lloyds, Metro, Starling, and many more.
So, the first step in determining how to open a bank account with an overdraft facility is to decide where you want to open.
Of course, if you already have an account with a UK bank that offers overdraft facilities, you may not need to open a new bank account at all. Instead, you can contact your current bank and ask if they will add an arranged overdraft facility to your existing account.
Requirements For Opening Accounts With Overdraft
If you go to the websites of any major UK financial institution and look up “overdraft facility” they will ask you to complete an eligibility check. You don’t need to do this, it’s just a way for them to collect your information.
Here are the real requirements that will make you eligible (or ineligible) for opening accounts with overdraft in the UK. Please note that each requirement may vary depending on the bank that you choose to open with. So, be sure to check each bank’s requirements before opening.
Overdraft Facility Eligibility Factors
- Reasonable credit score
- No court judgments against you in the last six years
- You have not declared bankruptcy in the last six years
- You have not missed credit payments in the last six months
Frequently Asked Questions
Below are three of the most common questions that we receive from people looking into opening a bank account with overdraft. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.
Is It Bad to Use an Overdraft?
It can be bad to use an unarranged overdraft on a regular basis as it will negatively impact your credit score. However, if you have an arranged overdraft facility and correctly manage it like any other credit facility, it could improve your overall credit score. So, whether it is bad to use an overdraft depends on the type of overdraft you have and how you intend to use it.
What’s an Overdraft Buffer?
An overdraft buffer refers to the period of time that an account holder can go into “overdraft” without incurring interest from the bank. Once the overdraft buffer period has passed, banks typically charge a specified amount of interest on the overdraft amount. An overdraft buffer is also commonly known as an “interest-free buffer”. Most banks offer an overdraft buffer, however the specific timeframe and terms will vary from bank to bank.
How Long Can I Have an Overdraft For?
The length of time that you can have an overdraft will ultimately depend on your bank. However, there are different stages in an overdraft, including an “interest-free buffer” or “overdraft buffer” when additional interest will not apply. After the buffer period, it is common for banks to start charging interest. And, in certain instances, additional overdraft fees may apply if your account remains in overdraft for an extended period of time.
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