- Compare accounts for overdraft facilities
- 0% balance transfer cards
- Interest free credit card deals
We all know that it’s best to be in the black rather then the red when it comes to our bank accounts.
Unfortunately, that’s not an option for all of us. Some of us who find it hard to make ends meet need the back-up of an overdraft facility at the end of the month. And others will be more often in the red than the black.
But don’t make the mistake of thinking that all overdraft facilities are the same. Quite the opposite, in fact. While some accounts will make you pay dearly for borrowing money when you can least afford it, others will provide you with the cash you need to tide you over, absolutely free.
Choose the wrong account and the interest rate and fees you’ll be paying could effectively stop you from ever clearing your debt, with the worst performers penalising you with interest rates of 10% to 20%.
So choosing the right bank account if you’re regularly overdrawn is vital.
However, choosing the right account isn’t so simple. First you need to work out whether you need a big overdraft or just occasionally need to dip slightly into the red.
Larger overdrafts
There are two current accounts that stand head and shoulders above the rest if you need a big overdraft. The Alliance & Leicester Premier Direct Current Account offers a full 12 months interest free on overdrafts up to £2,000.
This is a winner if you need a break to try and get your finances back on track as it’ll essentially give you a £2,000 interest free loan for a whole year. To qualify, you’ll need to pay in at least £500 a month, which should be easily manageable for most of us.
After a year, you will be charged a daily usage fee of 50p a day up to a maximum £5 a month. So even after your free year is up, the charges are reasonable.
An alternative is the Santander Preferred Overdraft Rate Account. Likewise, this offers you an interest free overdraft for a full 12 months. But you will have to agree the size of your free overdraft in advance. At best, you’ll be offered up to £5,000, depending on how big an overdraft your existing current account provider is letting you have.
However, you must use this opportunity to get your finances in order as following the 12-month interest free period, you’ll be charged an interest rate of 12.9%. Like the Alliance & Leicester account you’ll need to pay in a minimum regular monthly amount – but of at least £1,000.
Smaller overdrafts
If you need a smaller overdraft for a shorter period, there are options from other providers worth considering.
The Norwich & Peterborough Building Society’s Gold Current Account offers an interest-free overdraft facility of up to £500 for up to six months. After this, the rate leaps to 11.74%. You will need to pay in a minimum £1,500 a month to qualify.
A longer lasting option is available with Citibank’s Access Account. This offers you a facility of £500 interest free but charges a hefty 13.9% for anything over this amount. On top of this, if you exceed the £500 limit, you’ll be faced with an arrangement fee of 0.5% (minimum £20) and you’ll also have to pay an annual arrangement fee. To qualify, you need to pay in a slightly more modest £1,250 a month.
The best account if you only need to go slightly into the red, is First Direct’s 1st Account. This offers you an interest free overdraft of £250. But the best part is that they’ll give you £100 just for switching to them and then another £100 if you decide to leave!
The only downside to this is that you’ll need to be careful not to exceed your £250 limit as you’ll be charged a whopping 15.9% interest. You also need to pay in at least £1,500 a month.
So far, so good. The notion that you would have a bank prepared to give you £100 for opening a new account while you were overdrawn was unthinkable only a few years ago. And all the accounts mentioned above offer great deals, provided you are careful not to exceed your limit and have sufficient monthly income to qualify.
But good as they are, do interest free current accounts provide the best way of borrowing money for nothing?
Consider interest free credit cards
An alternative to opting for an interest free overdraft is to go for an interest free credit card on new purchases. In this way, you simply transfer the spending that would have got you overdrawn onto a card instead.
Two of the biggest supermarkets are offering the best deals on these at the moment. Tesco’s Clubcard Mastercard offers a full year interest free credit on all purchases, while Sainsbury’s Finance Nectarcard offers the same deal but also allows you to transfer an existing card’s balance – still at 0% interest - for the full year.
…or interest free balance transfer cards
If you already have a large overdraft and need a cheaper way of coping with it, consider applying for a 0% balance transfer card.. The Virgin Money Credit Card gives you 14 months interest-free on balance transfers, while the MBNA Platinum Visa gives you 13 months interest-free on balance transfers.
These are a great way of borrowing money for free while you get your finances back on track. However, you will need to pay a 4% fee for any money transfers for both of these cards.
