Can your bank take money from your savings to pay other debts?

Imagine checking your savings and finding hundreds of pounds gone – not because you spent it, but because your bank quietly moved it to cover a loan or overdraft you have with them.

For people struggling with debt, this can be a nasty shock. It often feels like the bank has “stolen” your money. In law, it is usually something called the right of set-off (also called “setting off” or “combining accounts”).

This guide explains what that means, when banks are allowed to do it, when it may be unfair, and how you can protect yourself – especially if your income is already stretched.

What is the bank’s “right of set-off”?

Debt advice charities and consumer sites explain that most banks have a legal and contractual power to use money in one of your accounts to pay a debt you owe them on another account.

Common examples:

• moving money from your savings account to reduce an overdrawn current account
• using money in your current account to pay arrears on a loan or credit card with the same bank
• taking a lump sum to clear missed instalments on a personal loan or business loan.

StepChange describes this as the bank’s right of set-off – a way for them to “set off” money you hold with them against money you owe them, as long as certain conditions are met.

MoneySavingExpert puts it bluntly: banks can, and do, dip into your accounts to repay overdue debts held with the same banking group.

The Financial Ombudsman Service (FOS) has a technical note for complaints about “bank accounts: right of set-off”, and many of its case studies involve exactly this scenario.

When can your bank legally do this?

The right of set-off comes from both common law and from the terms and conditions of your accounts. The financial regulator has published guidance on how banks should use it fairly.

Debt advice charities summarise the key conditions like this:

1. Same banking group

   • The account with money in it and the debt must both be with the same bank or banking group.
   • A bank cannot use set-off to pay a debt you owe to a completely different company.

2. Same customer (with some rules on joint accounts)

   • Generally, the money and the debt must belong to the same person.
   • Specialist guidance says a bank should not usually move money from a joint account to pay a debt in just one name, or from a sole account to pay a joint debt, unless specific conditions are met, because that may be unfair to the other account holder.

3. Debt must be due or in arrears

   • StepChange notes that banks should only use set-off if a debt is due for payment or in arrears – not if all repayments are up to date.

4. They should warn you and act fairly

   • Good practice (and regulator guidance) is that banks warn you clearly in advance that they might use set-off if you do not respond about arrears.
   • They should think about your overall situation and leave you enough to cover essential living costs, not just empty the account. The Ombudsman has upheld complaints where banks used set-off in a way that left people unable to pay priority bills.

In short, banks often have the legal right to move money between your accounts to pay their own debts – but they also have a duty to treat you fairly when they do it.

What about benefits and essential income?

National Debtline and other advice services warn that if your wages or benefits are paid into an account where you already owe the bank money, you are at risk of set-off.

They talk about using a “safe account”:

• a basic or standard current account with a bank you do not owe money to
• where your wages, pension or benefits are paid in
• which you then use to pay priority bills like rent, council tax, food and energy.

MoneyHelper explains that basic bank accounts are specifically designed for people with poor credit histories or formal debt solutions, and many are fee-free. These accounts do not allow overdrafts, which also removes the risk of building up new debt on day-to-day spending.

By moving your income to a safe account, you reduce the risk of your bank taking money you need for essentials to pay an old loan or overdraft.

Is this the same as the tax office taking money?

No – but the impact can feel similar.

Banks using set-off is one issue. A separate policy, sometimes called Direct Recovery of Debts (DRD), allows the tax authority in this country to instruct banks to take money directly from people’s accounts in certain circumstances to recover unpaid tax.

Recent news reports show that this power was paused during the pandemic and then restarted in a “test and learn” phase in 2025 for people who:

• owe at least £1,000 in tax
• have ignored repeated attempts to agree payment
• are judged to have enough money to pay
• must be left with at least £5,000 across their accounts after the money is taken, to protect essential living costs.

This is different from set-off because it involves the tax authority instructing the bank to move money, rather than the bank doing it for its own debt. However, both can result in money leaving your account without you pressing “pay”, which is why advice agencies stress the importance of opening post and responding early to any arrears letters.

What happens if your bank has already taken money?

If your bank has moved money from one of your accounts to pay a different debt and you think it is unfair, do not ignore it.

1. Ask the bank to explain exactly what they have done

Write or message the bank and ask for:

• a breakdown of which account the money came from
• which debt it was used to pay
• the legal or contractual basis they relied on (for example, a particular clause in your terms).

They should confirm whether they have used their right of set-off.

2. Explain if you are in financial hardship

Regulator guidance on fair treatment and the new Consumer Duty expects firms to take account of customers in vulnerable circumstances and to avoid outcomes that cause serious harm where it can be avoided.

If the transfer has left you unable to pay:

• rent or mortgage
• council tax
• gas, electricity or food
• other essential costs,

tell the bank in writing and ask them to:

• refund some or all of the money
• agree an affordable repayment plan instead
• confirm they will not repeat set-off without talking to you.

The Financial Ombudsman has ordered banks to refund money and remove charges in cases where set-off was used in a way that did not leave enough for essential bills.

3. Make a formal complaint if needed

If you are not satisfied with the bank’s response, you can make a formal complaint through its complaints process. The bank normally has up to eight weeks (or in some cases 15 days for certain banking complaints) to give you a final response.

If you still disagree after that, or if the bank does not respond, you can take your case to the Financial Ombudsman Service, which can:

• order the bank to refund money
• require it to reverse interest and charges
• award compensation for distress and inconvenience.

Complaining to the Ombudsman is free, and its decisions are binding on the bank in most circumstances.

How to protect yourself if you owe money to your bank

MoneySavingExpert and debt advice charities suggest several practical steps if you owe your bank money and are worried about set-off:

1. Do not pay your wages or benefits into an account where you have big debts

   • Open a new current or basic account with a different banking group.
   • Arrange for your employer, pension provider or benefits office to send income to the new account.

2. Move your essential bills over

   • Set up Direct Debits or standing orders for rent, council tax, energy and other priority bills from the new account.
   • Leave only what you can afford to pay towards debts in the old account.

3. Tell your creditors you are in difficulty

   • Contact the bank and any other creditors and explain you are getting help with debts.
   • Ask them to freeze interest and charges where possible and to accept lower payments while you stabilise your finances.

4. Get free, independent debt advice

   • Services such as Citizens Advice, National Debtline and StepChange can help you draw up a proper budget, deal with priority debts and decide whether formal solutions like a debt management plan, IVA or other option are appropriate.

5. Avoid building up new overdrafts or loans with the same bank

   • If you are already in difficulty, more borrowing from the same lender can make it easier for them to use set-off and harder for you to protect income for essentials.

Key points to remember

• Banks often have a legal right of set-off, which lets them move money between accounts you hold with them to pay debts you owe them.
• They can normally only use this where the accounts are with the same banking group, the debt is due or in arrears, and you are the same customer.
• Advice bodies say banks should warn you, act fairly and leave enough for essential living costs – and regulators and the Ombudsman can step in where they do not.
• Arrears to the tax authority are a separate issue: in some cases they can use legal powers to recover tax directly from accounts, but only above certain thresholds and with protections so essential money is left untouched.
• If your bank has taken money in a way that leaves you unable to pay rent, food or energy, you should contact them immediately, explain your situation and, if needed, complain to the Financial Ombudsman.
• To reduce the risk of set-off in future, use a safe account with a bank you do not owe money to for wages and benefits, and get debt advice as early as possible if you are struggling.

Understanding that your bank can sometimes dip into one account to pay another debt – and knowing how to challenge it when it is used unfairly – can stop a nasty surprise on your statement from turning into a full-blown financial crisis.