Young Adults Prioritize Overdrafts, Willing to Switch Banks Amid Rising Debt

Half of young people in the UK would switch banks to secure a better overdraft, as debt levels continue to climb among this demographic, a new study reveals.

The findings from Pay.UK, which operates the Current Account Switch Service, indicate that debt is becoming a more critical factor in banking decisions for many consumers who hold unsecured debt. Unsecured debt, which includes overdrafts, credit cards, and most personal loans, is not tied to any specific asset.

According to the research, 51% of UK adults have unsecured debt, a figure that rises to 65% for those aged 25 to 34. Among this age group, 55% stated they would switch to a different bank account if it offered a better overdraft. For adults aged 18 to 24, 49% indicated they would consider changing banks for more favorable overdraft terms, compared to less than 18% of those aged 55 and over.

An overdraft allows account holders to borrow money when their account balance falls below zero. The survey of 2,000 adults found that approximately a quarter were more likely to consider switching banks due to concerns about debt. This number surged to 48% among individuals aged 25 to 34.

The study also noted a trend of people turning to alternatives outside traditional banking for their financial needs. Thirty-seven percent of respondents said they would prefer to use buy now, pay later services over approaching their bank for support, while 34% would rather rely on a credit card. Around one in five people reported using buy now, pay later services last year due to financial pressure, with 16% using an overdraft and another 16% borrowing from friends or family.

More than 70% of 25- to 34-year-olds reported using an overdraft, buy now, pay later services, or borrowing from personal connections in the past year while accumulating debt. Nearly half of younger individuals surveyed felt that banks and building societies do not offer sufficient support for those struggling to manage their finances.

John Dentry, product manager at the Current Account Switch Service, commented that consumers' financial needs evolve, especially during periods of financial strain. He highlighted that many younger individuals are actively evaluating their bank accounts for necessary support and features, including overdraft access and financial management tools.

Switching Accounts While Overdrawn

It is possible to switch bank accounts even while in overdraft, provided the new bank agrees to transfer the debt. This arrangement must be confirmed with the new provider before initiating the switch. The new bank may offer a lower overdraft limit or decline the request entirely. If the new bank refuses to carry over the overdraft, the old bank may demand repayment of the outstanding amount. Dentry advised that being overdrawn should not automatically prevent an account switch, but customers should secure an agreement with their new provider beforehand.