Managing money at university isn’t always easy. Rent, food, and going out all add up surprisingly fast. That’s where a student overdraft can come in handy. It’s basically a financial safety net for when your balance dips low. But like anything else to do with money, it’s important to know how it works so you don’t get caught out later.
So What Actually is an Overdraft?
An overdraft is when your bank lets you spend more money than you actually have. With a student overdraft, that extra spending limit is usually interest-free, meaning you don’t pay extra charges for using the overdraft (as long as you stay within the agreed limit).
Basically, most student bank accounts give you an arranged overdraft limit. Let’s use an overdraft limit of £1000 as an example. If you spend more than you actually have, you’ll enter into the overdraft and your balance will show up negative. Say you’re £300 into the overdraft, your balance will show as -£300 and your available balance will show as £700.
If you were to then spend an additional £800, you will then enter the unarranged overdraft. Essentially, you’re past the agreed overdraft limit and at this point, the bank will likely begin to charge you fees. If you constantly dip into your unarranged overdraft, or you remain in it for a while, it may affect your credit score, so doing your best to keep out of the unarranged overdraft is key.
Why do Banks Offer them?
Student overdrafts are a way for banks to attract students who they hope will stay with them after graduation.
Important Things to Note About Overdrafts
Overdrafts are NOT free money. You will need to pay it back. After you graduate/finish your studies, most banks give you about a year before they start charging interest, and some will slowly reduce your overdraft limit. Going into an unarranged overdraft can damage your credit score and lead to expensive fees.
Final Thoughts
A student overdraft can be a really useful safety net when money gets tight, but it works best if you see it as a backup, not extra spending money. Keep track of your balance, stay within your limits and have a plan for paying it off after uni. That way it’ll stay helpful when you need it, and won’t become a headache down the line.
Now that you know about overdrafts, you might be ready to open a student account. Check out our guide to the Best Student Bank Accounts 2025, to find out which bank account is the best for you.