CalcBritain

Overdraft Cost Calculator

Almost every UK bank now charges around 39.9% EAR on an arranged overdraft, see what that actually costs you per month and per year, and how it compares with cheaper ways to borrow.

Estimate only. This is an estimate, representative figures, not financial advice. Your bank's actual EAR, any 0% buffer and exact charging method may differ, check your account terms. Struggling with your overdraft? Free, independent help is available from MoneyHelper, StepChange or National Debtline.

Enter your overdraft amount

Your monthly and annual overdraft cost, plus cheaper alternatives, appear here as you type.

How overdraft cost is calculated

An Effective Annual Rate (EAR) already accounts for compounding, so the daily cost isn't simply the EAR divided by 365, it's decompounded into a true daily rate: (1 + EAR)^(1/365) − 1. That daily rate is then compounded over the number of days you're overdrawn each month to get the actual cost. Since the FCA's 2020 overdraft reforms banned the old daily and monthly fixed fees, this single annual rate, commonly around 39.9%, now applies to arranged and unarranged overdrafts alike at most major UK banks, which is why even a modest, short overdraft can cost far more than most people expect.

Why overdrafts cost more than credit cards

In April 2020 the FCA banned fixed daily and monthly overdraft fees and required banks to charge a single interest rate instead, expressed as an EAR. The stated aim was transparency, and it worked: the cost became visible. What also became visible was how high it is.

Most high-street arranged overdrafts settled at around 35 to 40% EAR, which is higher than a typical credit card and far higher than a personal loan. The reform also removed the old distinction where unarranged borrowing cost dramatically more than arranged, since banks can no longer charge more for going over an agreed limit than under it.

So an overdraft is now simply expensive borrowing with a convenient interface. The danger is not the rate, which is published, but that the interface makes it invisible: nobody decides to borrow, the balance just goes below zero.

The monthly figure hides the annual one

Interest is charged daily on the amount overdrawn, so the cost depends on both how deep you go and how long you stay there. Being £500 down for 20 days a month at 39.9% EAR costs £9.28 a month.

Nine pounds is easy to dismiss. Over a year it is £111.36, which is a phone contract, and it buys nothing at all. Expressed a third way, it is £1.86 per £100 borrowed per month.

That per-£100 figure is the useful one, because it survives the mental accounting that makes overdrafts persist. A permanent £1,000 overdraft is not an inconvenience, it is roughly £220 a year, indefinitely, for money you are never actually using because you never get back above zero.

The calculator also compares against a low-rate loan and a 0% money-transfer card, because the alternatives are almost always cheaper and almost never considered.

Getting out of a permanent overdraft

The hard part is that an overdraft has no repayment schedule. A loan ends; an overdraft simply continues, so clearing it requires a deliberate plan that nothing prompts you to make.

A 0% money-transfer credit card moves cash into your current account for a one-off fee, commonly 3 to 5%, and gives an interest-free period to clear it. On a £500 overdraft a 4% fee is £20 against £111.36 a year of interest. It only works with a plan to repay within the promotional window, and it requires the discipline not to slide back into the overdraft once it is clear.

A small personal loan is the other route, with a fixed term that forces the debt to end. At 9.9% APR the same £500 costs a fraction of the overdraft rate.

Reducing the limit as you pay it down is the step that stops it coming back. An unused facility is an invitation, and banks rarely reduce a limit unless asked.

What your bank has to do if you are struggling

The 2020 rules came with obligations, not just pricing changes. Banks must identify customers showing signs of financial strain from repeated overdraft use and contact them, and they must offer support rather than simply continuing to charge.

That support can include reducing or removing interest, agreeing a repayment plan, or moving the balance to a cheaper product. None of it happens automatically if you never respond to the letter, and the letter is easy to mistake for marketing.

Asking is not a black mark. Banks are required to treat customers in financial difficulty fairly, and a conversation before you miss something is treated very differently from one afterwards.

Some accounts still include a small interest-free buffer, commonly £15 to £50, which stops trivial dips costing anything. It is worth knowing whether yours has one, since it changes how a small overdraft actually behaves.

Overdrafts and your credit file

An overdraft appears on your credit file and counts towards credit utilisation in the same way a card balance does. Sitting permanently at your limit reads as reliance on credit even with every payment made on time.

That matters most before a mortgage application, where lenders look at recent bank statements as well as the credit file. A consistently overdrawn account is a visible affordability signal and can reduce what you are offered.

Unarranged borrowing is worse than arranged, not because it costs more now, since the FCA equalised the pricing, but because returned direct debits and bounced payments leave their own marks.

Clearing the balance and reducing the limit improves both the utilisation figure and how the statements read. Our credit utilisation calculator works out how far a paydown moves the number.

Worked example: £500 overdrawn, 20 days a month

At a typical 39.9% EAR, with a low-rate loan and a 0% money-transfer card priced alongside for comparison. These are the exact figures this calculator returns.

Amount overdrawn£500.00
Days per month overdrawn20
Overdraft EAR39.9%
Cost per month£9.28
Cost per year£111.36
Cost per £100 borrowed, per month£1.86
Same borrowing on a 9.9% APR loan, per month£2.59
One-off fee on a 0% money-transfer card (4%)£20.00

£9.28 a month is easy to ignore and £111.36 a year is not, for money that buys nothing. The 4% money-transfer fee of £20 clears the same balance interest-free for less than three months of overdraft interest. The arithmetic is rarely close; what keeps overdrafts going is that nobody ever decides to borrow, the balance just goes below zero.

Frequently asked questions

How much does an overdraft cost?
Interest is charged daily on the amount overdrawn, so it depends on how much and for how long. Being £500 down for 20 days a month at 39.9% EAR costs £9.28 a month, or £111.36 a year, which works out at £1.86 per £100 borrowed per month. That per-£100 figure is the most useful one, because it makes a permanent overdraft's real annual cost obvious.
Why are overdraft rates so high?
In April 2020 the FCA banned fixed daily and monthly fees and required a single interest rate instead. Most high-street arranged overdrafts settled at around 35 to 40% EAR, higher than a typical credit card and far higher than a personal loan. The reform made the cost visible rather than creating it, and it also stopped banks charging more for unarranged borrowing than arranged.
What is EAR and how is it different from APR?
EAR, the Effective Annual Rate, is used for revolving borrowing like overdrafts where there is no fixed term or repayment schedule. APR is used for fixed-term credit and must include compulsory fees as well as interest. Both express an annual cost, but an overdraft's EAR applies only while you are actually overdrawn, since interest is charged daily on the balance.
Is an overdraft cheaper than a credit card?
Usually not. Since the 2020 reform most arranged overdrafts sit around 35 to 40% EAR, above typical credit card rates. A 0% money-transfer card is cheaper still for clearing an overdraft: a one-off fee of around 3 to 5% buys an interest-free period, so £20 on a £500 balance replaces £111.36 a year of interest, provided you clear it within the promotional window.
How do I get out of a permanent overdraft?
The difficulty is that an overdraft has no end date, so nothing prompts a plan. The two practical routes are a 0% money-transfer card, which moves the cash into your account for a one-off fee, or a small fixed-term personal loan, which forces the debt to end. Whichever you use, reduce the overdraft limit as you pay it down, because an unused facility is how it comes back.
Does an overdraft affect my credit score?
Yes. It appears on your credit file and counts towards credit utilisation just as a card balance does, so sitting permanently at the limit reads as reliance on credit even with a clean payment record. It matters most before a mortgage application, where lenders review recent bank statements as well as the credit file and a consistently overdrawn account is a visible affordability signal.
What should I do if I cannot clear my overdraft?
Contact the bank. Since 2020 they are required to identify customers showing signs of strain from repeated overdraft use, make contact and offer support, which can include reducing or removing interest, agreeing a repayment plan, or moving the balance to a cheaper product. None of that happens if the letter goes unanswered. Free independent advice is available from StepChange, Citizens Advice and National Debtline.
Is an unarranged overdraft more expensive than an arranged one?
Not in interest terms any more. The FCA's 2020 rules stopped banks charging more for going beyond an agreed limit than within it. What still costs you is the knock-on effect: payments and direct debits can be refused, and returned-payment charges and the marks they leave on your credit file are the real penalty rather than the interest rate.

Also known as: overdraft calculator · how much is overdraft interest · overdraft charges · how to calculate overdraft · how much does an overdraft cost · business overdraft calculator

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