Overdraft Cost Calculator

Since April 2020, FCA rules require UK banks to charge a single annual interest rate (EAR) on arranged overdrafts, with no daily or monthly fees. Most major banks charge between 35% and 40% EAR. This replaced the old system of daily fees plus interest that made costs difficult to compare, and it also removed the old distinction between arranged and unarranged borrowing, since unarranged overdrafts can no longer attract higher charges than arranged ones.

Interest accrues daily on the amount you are overdrawn and is charged monthly. The EAR already includes that monthly compounding, so the cost for a number of days is the balance × ((1 + EAR)^(days ÷ 365) − 1), not EAR ÷ 365 × days. At 39.9% EAR that works out at about 0.092% per day. On £1,000 it is £27.98 for 30 days, £86.31 over 90 days and £399 if the balance simply sits there for a year. Dip in for 5 days rather than the whole month and the same £1,000 costs £4.61, while being £500 overdrawn for 30 days costs about £14.

This calculator shows the daily and monthly cost of using your overdraft at a given EAR and balance, which is what makes it possible to judge whether an overdraft beats a credit card or a personal loan for short-term borrowing. Banks can still refuse a transaction that would take you past your arranged limit, and going beyond it invites declined-transaction charges of £10-£30 at some banks, payment refusal fees, late payment marks on your credit file and, in the worst case, account closure. An accidental overrun is often tolerated, but repeat unauthorised use stays visible on your credit file for 6 years.

Not every current account charges the same. The First Direct 1st Account makes the first £250 of its overdraft interest-free and charges 39.9% EAR above that, and the Nationwide FlexAccount has a £50 interest-free buffer before 39.9% applies. Starling Bank charges 15%, 25% or 35% EAR depending on your credit file. Monzo, Chase and Revolut do not all offer overdrafts, and cover varies between them. Most high-street banks land at 35-39.9% EAR once any introductory period ends. Arrangement fees have largely disappeared, but check the minimum monthly funding requirement, which is often £1,000+.

An overdraft earns its place in a very short window: a 1-7 day gap, an emergency expense a few days before pay day, or occasional planned use within an interest-free buffer. Almost everything else is cheaper. A 0% balance transfer card buys 24+ months interest-free, a bank loan sits at 8-12% APR, and around 30% of UK employers now offer a salary advance. Even paying the minimum on a credit card at 18-25% APR beats 39.9% on an overdraft. Being £1,000 overdrawn for 6 months costs about £183 in interest. Clearing the same £1,000 at £200 a month costs about £94 on a 39.9% overdraft, against £44 to £60 on a card at 18-25% APR.

Getting out usually means borrowing once, deliberately. Take a £500-£1,000 short-term loan or move the balance to a 0% credit card, clear the overdraft, then cancel the facility or reduce the limit in stages so you cannot drift back. A buffer of even £20 a month is enough to hold the line. FCA 2023 data puts average use at 2-3 times a year, but 20% of overdraft users borrow continuously for 12+ months, which is the most expensive way to borrow there is. Switching bank is worth considering too, since the Switch Service moves direct debits in 7 working days and many banks pay £150-£200 to switch.