How Overdraft Fees Work in the UK

Why overdrafts feel expensive

Going overdrawn is one of the most expensive ways to borrow small amounts short-term. With cost-of-living pressure, many people dip into overdrafts between paydays — and daily fees plus interest add up fast.

Rules changed in recent years: banks must show overdrafts as APR/EAR and cannot charge more for unarranged than arranged in many cases — but fees still hurt if you stay overdrawn.

Arranged vs unarranged overdrafts

An arranged (authorised) overdraft is agreed in advance up to a limit. An unarranged overdraft happens when you go negative without agreement or exceed your limit.

Unarranged borrowing may still incur charges or be refused (failed payments). Some accounts offer small interest-free buffers.

Interest (EAR/APR) on overdrafts

Overdrafts typically charge daily interest on the amount overdrawn. EAR (Effective Annual Rate) shows the yearly equivalent. A 35% EAR on a £500 overdraft for 30 days can cost roughly £14–£15 in interest — estimate precisely with our calculator.

Daily and monthly fees

Some accounts charge fixed daily fees when overdrawn (e.g. £1 per day) instead of or on top of interest. A £1/day fee is £30 per month before interest — expensive for small amounts.

Always read your bank’s fee schedule — legacy accounts may still have different structures.

How fees compound the problem

If your salary lands but standing orders push you overdrawn again before month-end, you pay repeated daily charges. People live in “permanent overdraft” without realising annual cost exceeds hundreds of pounds.

Overdraft vs credit card vs loan

For sustained borrowing, a personal loan or 0% money transfer card (if eligible) may be cheaper than living in overdraft. For genuine emergencies, overdrafts are convenient but costly long-term.

Tips to reduce overdraft costs

Switch to an account with lower EAR or interest-free overdraft if you qualify. Time direct debits after payday. Use budgeting to avoid dipping below zero. Ask your bank for support — some offer fee waivers or buffers under hardship policies.

Calculate your overdraft cost

Our Overdraft Cost Calculator UK estimates interest and daily fees from your overdraft amount, rate, fee and days overdrawn — useful before a month of unplanned borrowing.