Your wages land at 7am. By 7:05 the balance is lower than your rent, and the line in the app says the money went to your own loan.
Short answer. Yes, but only for a debt you owe that same bank, in your own name, once you are behind on it. The Financial Ombudsman expects a warning first and enough money left for essentials. Free advice: StepChange on 0800 138 1111.
This is called the right of set-off. In plain English: if you owe a bank money and you also have money with that bank, it can use one to cancel out the other. This guide is based on the Financial Ombudsman Service guidance on set-off, StepChange and Citizens Advice, checked October 2026. It is aimed at England and Wales. Scotland and Northern Ireland are covered in the questions at the end.
The five tests a bank has to pass
The Ombudsman is the body that decides complaints when you and a bank disagree. It says banks have a general right to set off, even when it is not written in your account terms. It also says the right has to be used appropriately and fairly. Put the Ombudsman guidance and StepChange advice together and there are five things a bank has to get right.
| Test | What it means for you |
|---|---|
| Same bank, same name | The debt and the money must both sit with the same bank, and you must hold both in the same capacity. A sole account and a joint account do not mix. |
| You are behind | You are not meeting the terms of the debt, for example you have missed loan payments. If you are up to date, StepChange says set-off cannot be used. |
| A warning and a chance to pay | The bank should have sent arrears notices or offered repayment options. It should also have given you general information about set-off, such as in the terms, at least 14 days before using it. |
| No hardship | It must not push you into financial difficulty. The Ombudsman looks at whether you were left enough to pay priority debts. |
| You are told straight after | If the bank uses set-off it must tell you promptly, with the date and the amount. |
Two small details matter. The bank does not have to take everything you owe in one go, and the Ombudsman says it could take less and agree affordable repayments. And the 14 days is about the general warning, not a letter that arrives the week before.
What a bank cannot reach
A different lender is out of reach. Your credit card with another company cannot be paid from your current account with this bank. Joint money is the other grey area. StepChange says a bank can move money from your sole account to a debt in your name, or to a joint debt. It cannot move money from a joint account to a debt that is only yours. Some terms say the bank can move money between any accounts with your name on them, and StepChange says that is likely to be treated as an unfair term. If it happens, make a complaint.
A real case: Glenn and the £12,000
The Ombudsman publishes anonymised cases, and one shows how this looks from the customer side. Glenn had a current account and a savings account at the same bank. His overdraft limit started at £5,000, and over three years the bank agreed to raise it several times while he waited for a divorce settlement. It reached £40,000. The bank then wrote to say it would only extend the facility for three months and asked how he would repay.
Glenn offered a plan. The bank never replied. Three months later it sent a formal demand for £38,000 and, without telling him, moved £12,000 from his savings to the overdraft, cancelled his direct debits and stopped his debit card. He found out when a cash machine swallowed his card and companies began ringing about missed payments.
The Ombudsman did not uphold the complaint about the set-off. The bank had made its concerns about the debt clear long before, so it was entitled to use his savings. What it got wrong was silence: it ignored his letter and never told him what it had done, because the branch and the collections team each assumed the other had written. The bank cut his debt by £350 for the inconvenience. Source: Financial Ombudsman Service case study.
The lesson is uncomfortable. Set-off can be lawful and still be handled badly, and savings at the same bank are not safe when you owe that bank money.
A worked example: £1,450 of pay and £600 of arrears
This is our own illustration, not a real case. Sam is paid £1,450 on the 28th. Sam is three months behind on a loan with the same bank, £200 a month, so the arrears are £600. The essentials due from that pay are rent £650, council tax £130, gas and electricity £110 and food £200. That is £1,090.
| What happens | Bank can take | Left for essentials | Against the £1,090 needed |
|---|---|---|---|
| Sam does nothing and the bank takes all the arrears | £600 | £850 | £240 short |
| Sam writes first and earmarks £1,090 for bills | Up to £360 | £1,090 | Covered |
In the first row the bank has taken money that was needed for rent and food. That is the situation the Ombudsman looks at when it asks whether you were left enough for priority debts. In the second row Sam keeps the £1,090. Even if the bank takes the other £360, £240 of arrears is still owed, which is why the next step is to talk to the bank about a payment plan, not to hide from it. Our guide to priority and non-priority debts explains which bills come first.
The letter has to arrive before the money does
StepChange says you can use your first right of appropriation if you live in England or Wales. The phrase sounds legal but the idea is simple: it is your money, so you get to say what it is for. You write to the bank before the pay or benefit is paid in, list what the money is going to cover, such as rent and food, and the bank cannot use set-off on money you have earmarked for essential living costs or priority bills. A free sample letter is on the National Debtline website.
Timing is the whole trick. A letter sent after the wages have landed is too late for that payment. StepChange adds that once you tell your bank you are struggling, it should give you four to six weeks to sort things out, which is enough time to open a new account and move your wages or benefits across. The bank may also offer to separate the overdraft from your account, or set you up with a basic bank account. If it will not help, you can open a basic bank account with a different bank.
Set-off is not a court order
People mix up two different things. Set-off is the bank helping itself to its own debt. A third party debt order is a court order that lets another creditor, who has already won a County Court judgment, freeze and take money from your account. Citizens Advice describes how that one works.
| Set-off | Third party debt order | |
|---|---|---|
| Who uses it | The bank you owe | Any creditor with a court judgment |
| Court needed | No | Yes. An interim order freezes the account, and a final hearing is at least 28 days later |
| Money covered | Debts you owe that bank only | Money in the account on the day the bank gets the order |
| Help if you are left with nothing | Ask the bank to refund what you need for bills, then complain | Apply to the court for a hardship payment order |
If the money was taken by a bank you owe, you are in the first column. If a court letter arrived first, you are in the second, and a free adviser should see it the same day.
If it has already happened
Contact the bank straight away and ask for some or all of it back if you cannot cover bills and living costs or priority debts. StepChange suggests exactly that. If the bank refuses, make a formal complaint. When the bank does not answer in time or you disagree with its reply, you can take it to the Ombudsman. If it decides set-off was unfair, it may tell the bank to put your account back where it would have been, including interest and refunded fees, and it may ask for compensation for distress. Reversing a set-off against a mortgage or loan is more delicate, so the Ombudsman expects the bank to talk it through with you first.
If you are already falling behind with the bank, get advice before the next payday. Our Bankruptcy and DRO Checker shows which formal options might fit, and Breathing Space can pause most creditor action while you get help. Overdraft trouble has its own guide: what happens if you go into an unarranged overdraft.
Questions people ask at 2am
Can my bank take my wages if I owe them money?
Only if the debt is with that same bank, in your name, and you are behind on it. The Ombudsman also expects a warning first and enough left for essentials. If you live in England or Wales, writing to the bank before the wages arrive and naming what the money is for can stop it.
Can a bank take money from my savings to clear my overdraft?
Yes, if the savings and the overdraft are both yours and both with that bank. In the Ombudsman case above, the bank moved £12,000 from savings to an overdraft and the set-off was not found unfair. The failure was that it did not tell the customer.
Can my bank use a joint account for my own debt?
StepChange says no. Money in a joint account cannot be used for a debt that is only in your name. It can be used for a debt you hold jointly with the same person. If your terms say otherwise, StepChange says that term is likely to be treated as unfair.
Will the bank warn me before it does this?
The Ombudsman expects the bank to have given you general information about set-off, such as in the terms, at least 14 days before it uses it. It also expects arrears notices and a chance to repay. After the event the bank must tell you promptly, with the date and amount.
Does this work the same in Scotland and Northern Ireland?
The Ombudsman covers complaints across the UK, but the earmarking letter StepChange describes is for England and Wales. In Scotland and Northern Ireland the legal route is different, so speak to a free adviser at StepChange or Citizens Advice before you rely on it.
Should I move my money before the bank takes it?
Do not empty the account in a panic. Talk to the bank first and ask about a clean account or a basic bank account. StepChange says the bank should give you four to six weeks after you talk, which is time to open a new account and have your wages or benefits paid into it.
More UK help: how to pay off debt.
Disclaimer: DebtShift is an educational platform operated by H Ali Logistics Ltd, which is not authorised or regulated by the Financial Conduct Authority (FCA). This article is general education, not financial or legal advice. For free, impartial debt advice, contact StepChange on 0800 138 1111.
Sources
- Financial Ombudsman Service, Bank accounts: right of set-off
- Financial Ombudsman Service case study: My bank transferred money to reduce my overdraft, but didn’t tell me
- StepChange, Can banks take your money to pay off debts?
- Citizens Advice, Creditor takes money from your bank account
- National Debtline, Ask your bank to pay particular bills out of your account
Last reviewed October 2026
Keep reading
Free and occasional
Get plain-English debt help in your inbox
A few emails a month at most: practical debt tips and a heads-up when we launch a new free tool. No spam. Unsubscribe in one click.