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What you need to know about your student overdraft

Anyone who has been to university will tell you one of the biggest perks of being a student is the account overdraft. Of course being a student is not cheap and with living costs rising as we speak and loans barely covering rent, students rely on their overdrafts more than ever to get them through university. The National Student Money Survey shows that 43% of students said that they use their student overdraft as their source of income and 55% said they will turn to the banks when needing emergency cash.

It is important for anyone becoming a student – or already a student – to know exactly how an overdraft works and its potential pitfalls and pay backs. Here we have put together all that you need to know about student overdrafts.

How do they work?

An overdraft is when the bank allows you to spend more money than you actually have up to a pre-agreed moment. Overdrafts show up as minuses in your account. For example, if you have only £100 in your account but you spend £200 then your account balance will show up as -£100.

The best way to think of an overdraft is to act as if it is an emergency piggy bank that you can dip into if necessary but that you will need to pay back eventually. And that the money isn’t technically your money. It is very easy to think of this as free money but that is not the case. Really, it is only a loan.

There are two overdrafts that you should be aware of:


This is sometimes known as a planned overdraft or also authorised overdraft which essentially means it is a prearranged amount that you and your bank agreed on. The bank has therefore allowed you to borrow up to that amount in your current account. With most student accounts there will be no interest or charges on top of this amount.

Unarranged overdraft

This is also known as an unplanned overdraft (or unauthorised overdraft) and it basically means you have exceeded your pre-agreed amount that you arranged with your bank. The bank will charge you a fee if this happens so it is very important that you avoid doing this as much as possible. An example would be an arranged overdraft amount of £500 – but your account becomes overdrawn by £800. You’ll then incur a fee for going over for limit.

The right overdraft for you

So choosing the right overdraft and student account for you is yet another factor to consider. Here is what the best ones will offer you:

Interest free money – Finding an overdraft that is 0% interest is very crucial because you are more than likely to spend a couple of years living within your overdraft, so the last thing you want is to accumulate extra charges on top of it. Make sure you doubt check this because not every bank will offer you this.

A guaranteed minimum amount – This usually increases per year. Some banks will offer an overdraft up to £3,000 but then how much you get all depends on your credit rating and what year of university you are in. They may tempt you with the tactic of suggesting a certain amount but then only to restrict your limit when the account is opened.

Things to remember

  • It’s not free money, you will eventually have to pay it back. Therefore, the less you spend the less you borrow, then the less you will have to repay later.
  • The bank can cancel your overdraft at anytime. So try to remember that they are not 100% reliable.
  • You will be charged if you go over your limit.
  • Your credit ratings matter, so be careful with your money and don’t spend your time constantly going over your overdraft.
  • One student account is enough! Having multiple accounts will get you into debt.

If you are still unsure about how overdrafts work in general and need some more information, take a look at this guide that explains everything you need to know about overdrafts.