How does an overdraft work?
You may receive an overdraft automatically with a new current account, or you may have to request one.
An arranged overdraft is where your bank agrees that you can spend more money than is in your account, up to a certain limit. You’ll be charged interest while you’re using the overdraft, but there won’t be any further charges to pay.
An overdraft is a form of credit that can be taken away at any time, without notice, by your bank.
Dealing with bank account debts
As well as overdrafts, some accounts charge a monthly fee or require you to pay in a certain amount of money each month. If you’re paying a monthly fee and can't afford it you should consider changing to a fee- free account.
Think about whether you’re getting value for money through the account you have. For example, if you pay £15 a month for your account, it’s costing you £180 over a year.
The two main types of account are:
Basic accounts - these accounts don't have an overdraft or a cheque book, so you can’t spend more money than you have. Some basic bank accounts come with cash cards which you can use in cash machines. Other accounts come with debit cards. Most basic accounts let you set up standing orders and direct debits.
Although your credit rating will be checked when you open a basic account you should still be approved, regardless of your credit history.
Current account - current accounts generally come with an optional overdraft, cheque book and debit card. You’ll be able to set up direct debits and standing orders on the account.
The bank's likely to check your credit rating when you open the account, and may refuse your application based on your credit history. You might have to pay a certain amount of money into the account each month, or pay a monthly fee.