Get a better overdraft today!

If you're constantly dipping into the red, make sure you've got a decent overdraft!

Overdrafts are really a double-edged sword. After all, they can be incredibly handy to fall back on if you desperately need some additional funding.

But they can also be a very expensive way of borrowing, with interest rates often in the region of 10% to 20%. And this means if you’re regularly dipping into your overdraft, you could be spiralling further into debt.

Of course, the best way to tackle this is to simply not have an overdraft at all, or get rid of your overdraft for good.

• Watch our video: Wave goodbye to your overdraft forever.

But for many of us, that simply isn't an option. So if you really do need to have an overdraft as back-up, make sure you opt for a current account that has a decent overdraft facility – and one that charges as little interest as possible.

So let’s take a look at some of the best current accounts for those of you who slip into the red.

Larger overdrafts

What would you say if I offered you an overdraft completely interest-free? Chances are, you’d jump at the opportunity!

Well, that's exactly what you can have with the Alliance & Leicester Premier Direct Current Account, which offers 12 months interest-free on overdrafts up to £2,000. So this means you won’t have to worry about the interest racking up on your overdraft for a whole year. Ideally, it should also give you an opportunity to tackle your overdraft and try to get yourself back in the black.

Once the first year is up, you will be charged a usage fee of 50p per day (up to a maximum of £5 a month). You must also pay in £500 a month to be eligible for this account.

Similarly, the Santander Preferred Overdraft Rate Account offers an interest-free overdraft for 12 months, and will match your previous overdraft up to £5,000 (depending on your circumstances). After the first year, you’ll be charged an interest rate of 12.9% EAR. You will need to pay in £1,000 a month to be eligible for this account.

Smaller overdrafts

If you have a smaller overdraft, you might prefer to consider the following options.

If you know you will only need your overdraft for a short period, the Norwich & Peterborough Building Society Gold Current Account may have the solution. That’s because it offers a £500 overdraft for the first six months, interest-free.

If you still need your overdraft after that period is up, the rate will jump to 11.74%. However, to qualify for this rate, you will need to pay £1,500 into this account each month.

If you’d prefer to have a longer lasting interest-free overdraft, the Citibank Access Account offers an interest-free overdraft of up to £500, and charges an interest rate of 13.9% for anything over this amount. However, to qualify for this, you will need to credit your account with at least £1,250 a month.

For overdrafts over £500, an arrangement fee of 0.5% (minimum £20) may apply, and you will also have to pay an annual renewal fee.

Alternatively, First Direct offers a slightly smaller interest-free overdraft of £250 with its 1st Account. And what’s really great about this account is that you’ll receive £100 just for switching over! What’s more, if you’re not happy with your account, you’ll get another £100 if you decide to leave - although that seems pretty unlikely, given First Direct is renowned for its fantastic customer service.

Just be aware that you will need to fund the account with at least £1,500 a month. And if you go over the overdraft limit of £250, you’ll be charged an interest rate of 15.9%.

Borrow another way

Hopefully this will have provided you with a few decent options for a better overdraft rate. However, there is another way you could consider borrowing.

If you have a big purchase coming up, rather than dipping into your overdraft, a much better option is to use a 0% new purchases credit card. And right now, you have two top paying credit cards to choose from!

The Sainsbury’s Finance Nectarcard Credit Card MasterCard offers an interest-free period on purchases for 12 months. So that gives you a whole year to spend on this card, without worrying about paying interest.

Normally we wouldn’t recommend you transfer a balance onto a credit card you’re using for spending. And that’s because you’ll get caught out by a nasty trick called negative order of payment.

• Watch our video: Don’t get caught out by negative order of payment.

However, with the Sainsbury’s Finance Nectarcard Credit Card MasterCard you don’t need to worry about this because if you do decide to transfer a balance onto this card, you also won’t have to pay interest on the debt for 12 months - so both your purchases debt and your balance transfer will be treated exactly the same!

Alternatively, you might prefer to consider the Tesco Bank Clubcard MasterCard which also offers a 12 month interest-free period on all new purchases. However, with this card, make sure you don’t transfer a balance across, otherwise you will get caught out by negative order or payment.

Just remember that for both of these credit cards you need to try and pay off your balance in full before the interest-free period comes to an end. Otherwise you’ll be hit with a hefty rate of interest.

Pay it off

If you already have a large overdraft, and you want to find a cheaper way of coping with it, you could also consider applying for a 0% balance transfer credit card.

That’s because certain credit cards will allow you to transfer part of your credit limit straight into your current account – as a cash or money transfer. This means you'll then be able to put this cash towards your overdraft and still enjoy the same 0% interest rate you would on standard balance transfers.

The Virgin Money Credit Card, for example, offers 14 months interest-free on all balance transfers, including money transfers, while the MBNA Platinum Visa offers 13 months interest-free on all balance transfers, including money transfers. Just bear in mind you will need to pay a 4% fee for any money transfers for both of these cards.

Take control

Finally, don’t forget that if you’re hoping to get a better grip on your finances, the lovemoney.com online banking tool is a great way to do this. If you register your accounts, every time you make a purchase, the tool will record it for you. It will also allow you to categorise all your transactions so you know exactly what you're spending your money on every month! 

What's more, thanks to our new budgeting tab, you can now set a monthly budget for any specific category (such as petrol and fuel)! So this should help you to take control of your spending, and hopefully prevent you from slipping into the red!

Good luck!

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