Switch to get the best overdraft on your bank accounts

People in their overdraft can save money by moving to a current account that charges lower interest.

Being overdrawn on your bank account is not a barrier to switching to a new provider and could actually be a good reason to move to a better deal.

By switching bank accounts you can receive an interest-free overdraft for a limited period and cut your ongoing overdraft interest rate to under ten per cent.

Additionally for people in credit on their current account, interest rates of more than six per cent are available.

"The current account war shows little sign of abating, with several providers battling to offer the best current account rates and deals," said Michelle Slade, personal finance analyst at comparison service Moneyfacts.co.uk.

"So why not reap the rewards from switching? You will certainly find some great rates and perhaps an additional financial incentive too."

Moneyfacts points out that while in the past Alliance & Leicester dominated best-buy tables, more recently banks such as Halifax, Abbey and Coventry Building Society have knocked Alliance & Leicester off the top spot.

On Friday Alliance & Leicester increased the amount of interest it pays on positive balances on current accounts putting it back to the top of the charts, but rates are not everything.

"If you do decide to switch providers it is a choice which you will probably stick with for some time," explained Ms Slade.

"Thus it is vital that you do your homework and make the right choice. Are you someone always in credit, or do you rely on an overdraft? Do you prefer to use a branch, internet or telephone?"

But with interest-free bank account overdrafts available, and interest on positive balances reaching above six per cent - there is a lot of money to be made or saved by switching current account.

A customer with an average credit balance of £2,000 can earn almost £125 extra interest in a year, while someone £2,000 overdrawn can save themselves more than £300 a year in interest payments.

"The switching process is relatively simple, and in most cases you can either leave your new bank to complete it for you or you can control the process yourself," Ms Slade added.