Cut overdraft costs

Got savings? Use them to pay off your overdraft

If you've savings and an overdraft, using the savings to clear the debt will usually leave you better off - overdrafts typically charge far more interest than savings accounts pay, and an overdraft is usually the most expensive form of debt you can have.

For example, a £1,000 overdraft costing £20 a month in interest adds up to £240 a year. Yet £1,000 in a top easy-access savings account paying 4.5% earns just £45 a year (before any tax). So using your savings to clear the overdraft would save you £195 a year.

It can be sensible to keep your overdraft facility if you can, in case of emergencies - just make sure you've enough funds to cover essential bills and any immediate expenses.

Once you've cleared your overdraft, you can start rebuilding your savings. See our Repay debts or save? guide for more help.

See if you can switch to a cheap or interest-free overdraft

If you can't clear your overdraft with savings, switching to a bank that offers an interest-free buffer or a lower interest overdraft could save you money while you pay it off.

First Direct is worth considering for smaller overdrafts, as many can get a £250 interest-free overdraft - though it's not guaranteed, so use the bank's eligibility checker before applying. Plus right now you can get a FREE £210 cash if you switch your bank account to it.

For larger overdrafts, Starling and Monzo could be cheaper if you qualify for their lowest rates. Both have eligibility checkers, though you'll need to apply to find out your actual rate.

Can you switch banks if you are overdrawn?

Yes, though your new bank won't necessarily take on your existing overdraft. If it doesn't, or offers a smaller limit, you'll need to arrange to repay any outstanding debt with your old bank. For example, First Direct won't automatically transfer your overdraft.

Our Best bank accounts guide has all the latest bank switching bonuses plus accounts with cheap overdrafts. See our App-based banking guide for more on Monzo and Starling.

All the banks listed in our table below allow you to check your eligibility for an overdraft, without it affecting your credit score. But they won't guarantee you'll be accepted - or the rate you'll get - until you actually apply.

Consider a 0% money transfer credit card to shift the debt

A specialist money transfer credit card lets you transfer cash into your bank account to clear your overdraft. You then owe the credit card instead, potentially at 0% interest for a set period.

There's usually a one-off transfer fee of around 3% to 4%, but this could be much cheaper than continuing to pay overdraft interest. For example, transferring £2,000 with a 4% fee would cost £80 upfront. That's considerably less than the interest you'd pay on a £2,000 overdraft at 40% if you remained overdrawn for a full year.

However, you'll first need to qualify for the card and then ensure you make at least the minimum monthly repayments. Always clear the balance before the 0% period ends to avoid interest and never spend on the card unless within a 0% offer. Otherwise, you could end up being charged interest even while the transferred balance is interest-free.

And remember, shifting your overdraft doesn't clear the debt. You'll still owe the money, so make a plan to repay it and avoid running up your overdraft again – otherwise you could end up with two debts to repay.

See our Money transfer credit cards guide and eligibility calculator to check your options.

A personal loan may work out cheaper if you can't get a 0% card

If you can get one, a loan can be a decent option, as it's likely to have a cheaper interest rate than your overdraft. Use our Loans Eligibility Calculator to check your chances. Some lenders offer guaranteed rates so you know what you'll get before applying.

Watch out for representative APRs. Only 51% of accepted applicants need to get the advertised rate – Others can be – and often are – offered a loan at a higher rate.

Compare the loan's total repayment cost with what you'd otherwise pay in overdraft interest. Remember that loans have fixed monthly repayments, so only borrow if you're confident you can afford them.

Struggling with overdraft charges? Ask your bank for help

If you're struggling to repay your overdraft, or the interest is making things worse, contact your bank and explain your circumstances.

Under FCA rules, banks must monitor repeat overdraft use and take appropriate steps to help customers reduce their reliance on overdrafts. If you're in financial difficulty, your bank may be able to:

• Reduce or temporarily waive overdraft interest.

• Agree an affordable repayment plan.

• Offer an alternative form of borrowing at a lower rate.

You don't need to wait until you've missed payments to ask for help, though your bank may ask you to agree a repayment schedule.

What if your bank refuses to help? You can make a formal complaint. If you're unhappy with its final response, or it hasn't responded within eight weeks, you can usually escalate it to the free Financial Ombudsman Service.

If you're struggling with multiple debts, free help is available. See our Debt help guide for more info.

Tips to pay off your overdraft

Cutting the interest is only half the job. Once you've made your overdraft cheaper, the next step is to pay off what you owe so you don't stay in debt.

• Work out what you owe and make a repayment plan. Unlike loans, overdrafts don't have fixed monthly repayments, so it's easy to stay in debt indefinitely. The first step to getting out of yours is understanding how much you owe and making a plan to pay it back.

• Use our Budget planner to work out how much you can realistically afford to repay each month. Even small, regular repayments will help reduce your debt and the interest you pay. If you've nothing left over, see our Money Makeover guide for ways to cut bills and free up cash. There are also a few tricks that could help:

• Shift your bill dates. Ask companies to move Direct Debits to later in your pay cycle. This could mean spending fewer days overdrawn and paying less interest – just make sure you've enough money left when the bills are due.

• Try piggybanking. Split your money into separate pots for bills, spending and overdraft repayments. Setting aside even £50 a month to pay down your overdraft will gradually reduce what you owe.

• Reduce your overdraft limit as you repay it. Ask your bank to lower your limit as your balance improves, so you're not tempted to borrow the money again. Just make sure you've enough of a buffer for essential expenses and emergencies.

Overdraft FAQs