Credit Building > Which UK bank accounts offer low overdraft fees?

Which UK bank accounts offer low overdraft fees?

Wollit Team2 minute read · Updated 3rd July 2024

If you often find yourself needing to use an overdraft, it’s a good idea to choose a bank account that does not charge exorbitant fees.

Let’s look at the best UK bank accounts for low overdraft fees and see how much they charge in interest rates, what their overdraft limits are, and what customer reviews have to say.

What is an overdraft?

An overdraft allows you to spend more than you have in your current account, essentially letting you borrow money from your bank through your usual bank account.

This can be useful for covering unexpected expenses, but it does come with high interest rates and fees.

Overdrafts charge interest daily, and the interest rates can be quite high, often around 40% APR.

Which banks have the lowest overdraft fees?

If you’re looking at the cheapest possible overdraft, with the lowest possible fees, here are some of the best options available now in the UK:

Starling Bank Current Account. Starling offers a competitive overdraft rate of 15% EAR for customers with excellent credit scores.
First Direct 1st Account. First Direct provides a permanent interest-free overdraft limit of £250, although whether you qualify depends on your credit score. After this, interest is charged at 39.9% APR. The account also offers a cash bonus of £175 for new customers who pay in at least £1,000 within three months of opening the account.
Nationwide FlexDirect. Nationwide offers a 0% interest arranged overdraft for new customers for 12 months. After this, the overdraft reverts to charging interest at 39.9% APR.
Barclays Current Account. Barclays is currently capping overdraft interest charges on personal current accounts at £180 per monthly charging period until further notice.
HSBC Premier. HSBC Premier offers a £500 interest-free overdraft (which depends on your credit score), with interest charged beyond that level at a variable annual rate of 39.9% APR. However, the account requires savings or investments of at least £50,000 or an annual income of £75,000 to open.

How can I pay as little interest as possible on my overdraft?

The best way to not pay interest on an overdraft is not to use one at all, and instead use a different kind of product. Credit cards, for example, often offer longer 0% interest rate periods on purchases.

However, if you do need to use an overdraft, here are some tips to pay as little in interest as possible:

Keep track of your spending to avoid going over your arranged overdraft limit.
Ensure you have enough money in your account to avoid unarranged overdrafts, which usually come with higher rates.
Set up notifications to alert you when your account balance is low.
Choose an account with an overdraft buffer. Many accounts offer an interest-free overdraft buffer up to a certain level to help those who occasionally slip into the red. This way, you won't have to pay high interest charges for small overdrafts.
Clear your overdraft quickly. Try to clear your overdraft as soon as possible to avoid accumulating high interest charges.
If you find yourself using an overdraft regularly, consider alternative forms of borrowing, such as credit cards or personal loans, which often offer lower interest rates.
Finally, improve your credit score so you qualify for current accounts with better overdraft terms, like bigger overdraft buffers, lower interest rates, and higher overdraft limits.

This final tip is one of the most important. Luckily, now there are many apps that can help you build and improve credit.

One of the specialised credit building apps that you can use is Wollit.

Wollit is an app available both on Android and iOS, and it works by reporting a fixed-fee monthly subscription as a loan repayment to all three credit reference agencies.

This directly builds your credit history, the main factor that matters for your credit score. Eventually, having a better credit score will improve your eligibility not only for better current accounts with low overdraft fees, but better credit card, personal loan, and mortgage offers as well.