Overdrafts: What you need to know

Overdrafts: What you need to know

This post was written by me for The Growing Up Guide.

We’ve all been there, avoiding looking at our bank account because we’re too scared to look at the balance. Next thing you know you can’t afford to pay your rent or eat for a week. An overdraft is a great way to help control your spending but allowing you to have access to more money when you need it.

What is an overdraft?

There are many different types of overdrafts that you can have. It’s really important that you seek as much advice as you can before opening one.

An overdraft is basically money that you are borrowing from the bank. It is usually a short-term borrow aid that can be used for emergencies or for a small period of time.

Having an overdraft will allow you to borrow money through your current account, with or without an additional charges.

Types of overdraft

Student overdraft

These are bank accounts that are made for those in higher education. They let you pay money in and out and offer interest-free overdrafts.

Simply, this means that you can spend more money than you have. Very handy if you don’t have enough student loan to pay your rent or bills.

If you do go over this set amount then you may be charged quite highly so watch out for this.

With these overdrafts you usually have to prove you are a student and have a substantial amount of money going in the account.

These accounts are usually interest free for 4 years – giving you one year after you graduate to pay it off.

Authorised overdrafts

These are arranged in advance. You agree a borrowing limit with your bank and you can spend up to that limit. There is usually a set fee with these overdrafts so it’s important to shop around when looking for the right one for you.

Usually with these types of overdrafts you might be charged a flat rate, but it is important to understand the different types of charges.

  • A fee – this could be a daily, weekly or monthly amount that is taken out of your account. This is usually a flat fee (50p – £3 a day). A daily fee can be expensive, especially if you go overdrawn by a small account.
  • Interest – This is a percentage that is charged to your account, usually between 15-20%.


Unauthorised overdrafts

These are also known us unplanned overdrafts. They occur when you spend more money than you have in your bank account without talking to your bank about it first.

These usually come with bigger fee’s and can stack up pretty quickly. They also tend to have a transaction fee  This can be from £10 to £25 with every cash withdrawal or transaction.

Current accounts now have a Monthly Maximum Charge (MMC) in place, which is the maximum amount you would pay each month in charges, fees and interests on unarranged overdrafts.

This doesn’t affect authorised overdrafts and is different on the bank or building society that you hold an account with.

Getting an overdraft

Depending on the situation, you can request an overdraft from your current bank.

However, it is important that you look around for the best deal. Your bank might offer you to upgrade your current account or open a new account.

Why you should consider getting one

Overdrafts are really handy when it comes to handling a mismatch of funds leaving your account.

If you have a lot of direct debits coming out of your account and you haven’t been paid yet it’s useful to have an overdraft to fall back on.

It can also be a very flexible way to controlling your money as you can control the amount that you want to borrow and reduce or increase your overdraft if needed.

Things to remember

Although an overdraft can be arranged in advance, if you need to borrow money it is important that you find the cheapest way to borrow.

You need to remember that although it’s there for you it’s important to understand it is still debt.

If you are struggling to budget the Money Advice Service has tips and tricks to help you out.



21 year-old lifestyle blogger who loves unicorns and glitter. Thank you for checking out my posts you absolute babes x


  1. January 22, 2018 / 2:15 pm

    Ouuu yass girl! I love find blogs like these that are diverse. I like this kind of informative info. You explained it better than my professor could have lol. Great post hun! ❤️

    xx Lena | https://lenadeexo.com

    • k8t4unicorns
      January 24, 2018 / 9:11 am

      Thanks Lena! Sometimes the simpler the explanation, the better! x

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