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Most banks now charge a single EAR around 35-40% on arranged overdrafts, calculated daily. Persistent overdraft debt at 40% costs more than almost any credit card; cheaper routes exist. Not financial advice.
What The Overdraft Cost Calculator Works Out
- Cost per month: the overdrawn amount multiplied by the EAR compounded for the number of days you are overdrawn, since banks calculate overdraft interest daily. GBP 500 used all month at 39.9% costs about GBP 14 a month. Since regulators banned daily fees in 2020, most big banks charge a single EAR of 35% to 40%.
- Cost per year at this pattern: the monthly cost multiplied by 12, around GBP 170 a year on GBP 500, for a debt that never shrinks by itself. Hovering permanently GBP 300 to GBP 800 overdrawn is the most expensive way to borrow that sum in mainstream banking.
- Daily cost: the monthly cost divided by the days overdrawn. Dipping in for a few days before payday costs pennies; permanence is the trap.
- Interest-free buffer (advanced): some current accounts give the first GBP 250 to GBP 500 of overdraft interest free, often with a switching bonus alongside. Only the amount above the buffer is charged.
- Same debt on a credit card (advanced): the overdrawn amount charged at a card APR (divided by 12) for the same days each month. A standard card at around 25% is noticeably cheaper than a 40% overdraft, and the EAR includes no fees so the two are directly comparable.
- Via a 0% money transfer card (advanced): a money transfer card pays cash into your current account to clear the overdraft, charging a one-off fee (typically 3% to 5%) and then 0% interest for a promotional period. The fee is spread over the 0% months to give an annual cost you can set against the overdraft.
- Clearing it by monthly repayments (advanced): how many months it takes to reach zero if you reduce the overdraft by a fixed amount every month, and the total interest paid along the way, with a month-by-month table. This turns a permanent debt into a temporary one.
- Unarranged overdrafts: can no longer cost more per pound than arranged borrowing, but refused payments still bring fees and credit-file marks, so an arranged buffer beats none. Banks must warn persistent users; free debt advice from StepChange or Citizens Advice is the move once the overdraft stops shrinking.
Further reading: MoneyHelper: overdrafts and borrowing.