The best accounts for overdrafts

These are the accounts for you if you occasionally dip into the red.

My first encounter with an overdraft was when I went off to University. Indeed, a bank account that sits in the red is now a seemingly inevitable feature for most students.

As a result, a decent, interest-free overdraft is a crucial part of any student account. And students got a boost last week when HSBC announced it was to increase the overdrafts available on its student accounts by an extra £1,000. Students can now make the most of a whopping £3,000, absolutely interest free, during their studies.

However, it’s not just students who have the need of a decent overdraft feature.

Dipping into the red

According to new research by R3, the trade body for insolvency professionals, a whopping EIGHT MILLION Brits will have made use of their overdraft at some stage in June. Eight million people. That’s an awful lot of people who ended up spending more than they had last month.

Of course, if you have an interest-free facility, and you’re using your overdraft sensibly in order to reduce your debt and get your finances back under control, that’s not necessarily a bad thing. I know I’ve used mine a few times since my son was born. But it’s fair to suggest that a significant proportion of those eight million people are not enjoying an interest-free overdraft, and are instead faced with interest and perhaps even charges as a result of dipping into the red.

Thankfully, there are a fair few current accounts out there which do offer a decent overdraft facility, even if you’ve long since finished your studies!

Santander Preferred Account

By a distance the best overdraft facility on offer comes from the Santander Preferred current account.

With this account, you enjoy an absolutely free arranged overdraft for a full year. Santander will match your existing overdraft (depending on your circumstances) up to as much as £5,000. That’s a seriously substantial overdraft!

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Of the course there is a big problem with the Preferred account – it’s with Santander. As we all know, the bank has a few issues with its customer service. Indeed, it regularly tops polls of the worst bank for customer service, and whenever we write about Santander we get plenty of horror stories from our readers. Having said all that, I’ve banked with Santander and have no complaints, so perhaps things are improving.

First Direct 1st Account

First Direct is the polar opposite of Santander, in that whenever there is an award going for customer service, First Direct tends to win it.

And not only is the customer service great, but the bank’s 1st Account is also a good option for those of you who need an overdraft. With the 1st Account, you can enjoy a completely interest-free £250 overdraft.

If you move above that level, or if you request an overdraft more than once every six months, then additional charges will apply.

As with the Santander account, there is also the opportunity to pocket some cashback when you take out the 1st Account. You get £100 when opening the account, and if you decide to leave after a year, you’ll enjoy another £100! However, you will need to pay in £1,500 a month, or pay a monthly fee of £10.

Co-operative Bank Current Account Plus

A third option comes from the Co-operative Bank, and its Current Account Plus. This account gives users a fee-free £200 overdraft facility.

In order to take advantage, you will need to pay in £800 a month. You’ll also benefit from access to a number of exclusive mortgage deals.

Nationwide FlexAccount

A final option worth considering is the Nationwide FlexAccount. This is only a good idea if you’re going to be overdrawn for a short period of time, as the interest-free overdraft facility only lasts for three months from the account opening.

After this point, you’ll be looking at interest of 18.90% AER on your overdraft.

Alternatives to overdrafts

In an ideal world, none of us would ever spend more than we have in the bank. However, this isn’t an ideal world, so many of us need to use a little credit here and there.

If you don’t fancy changing back accounts for the sake of a decent overdraft, then you may prefer to put that spending on a 0% credit card. Indeed, the best credit cards that offer 0% interest on purchases actually offer even more time free from interest than you will enjoy with the Santander Preferred Account!

For more on the best purchase cards, read New card offering 15 months 0% on spending.

Alternatively, you could put the spending on your existing credit card, and then move that debt over to a 0% balance transfer card. These offer even more substantial interest-free periods, in one case up to 20 months! For more, check out Virgin unveils amazing new balance transfer card.

More: Compare current accounts | The best cards for balance transfers | Why we don’t need banks