Overdraft interest is one annual rate charged on the amount you're overdrawn, for the number of days you're overdrawn. At a typical 39.9% EAR, £1,000 overdrawn for a whole month costs about £28, and for a whole year about £399.
There are no extra daily or monthly fees on top. Since April 2020, the FCA's rules say banks must price overdrafts with a single annual interest rate, can't charge fixed fees for borrowing, and can't charge more for an unarranged overdraft than an arranged one. These rules apply across the UK.
What it costs at 39.9%
| Overdrawn by | 7 days | 30 days | A full year |
|---|---|---|---|
| £500 | £3.23 | £13.99 | £199.50 |
| £1,000 | £6.46 | £27.98 | £399.00 |
| £1,500 | £9.69 | £41.97 | £598.50 |
| £2,000 | £12.92 | £55.96 | £798.00 |
At 19%, the low end of the range MoneyHelper quotes, £1,000 for 30 days costs about £14.40 instead of £28.
Working out your own
Your statement or app shows your rate as an EAR (effective annual rate). The EAR already includes the effect of interest being added to the balance, so you can't simply divide it by 365. Instead:
- Turn the EAR into a decimal and add 1. For 39.9%, that's 1.399.
- Raise it to the power of (days ÷ 365). For 30 days: 1.39930/365 = 1.02798.
- Take away 1 and multiply by the amount you're overdrawn: 0.02798 × £1,000 = £27.98.
For a rough figure, each £1,000 at 39.9% costs about 92p a day. Your bank's own figure may differ by a few pence, because the exact method is in its terms. NatWest's overdraft calculator, for example, shows £1,000 for 20 days at 39.49% EAR costing £18.49.
What makes yours higher or lower
- The balance changes every day. Interest follows what you actually owe. Being £1,000 overdrawn for the week before payday costs far less than sitting £1,000 under all month.
- Your rate. MoneyHelper puts bank overdraft rates at between 19% and 40% or more. Some accounts give a small interest-free amount, and student accounts often have a larger interest-free limit. Check your own terms.
- Arranged or not. Going past your limit can't cost a higher rate than your arranged overdraft, but a payment can still be refused.
- When it's taken. Interest is added later, often after your statement date, so it can push you further overdrawn the next month.
Why the cost adds up
A month at a time, £28 doesn't look like much. But an overdraft that never goes back into credit costs the full yearly figure, every year: £399 a year on £1,000, or £798 on £2,000. That is often more than a credit card or a personal loan would cost for the same money.
To bring it down, see how to pay off an overdraft, or whether you could pay it off with a 0% money transfer card. On a student account, read how to pay back a student overdraft before the interest-free period ends. To see when your overdraft and any other debts would be cleared, add them to the payoff calculator.
If you can't get out of it at all, free advice from StepChange, National Debtline or Citizens Advice is listed on our financial resources page.
Figures assume a 39.9% EAR (19% where stated), a fixed overdrawn balance for the whole period and a 365-day year, rounded to the nearest penny. Your bank's rate and method may differ. This is general information, not financial advice.