Calculate the true annual cost of your overdraft. Compare daily, monthly and annual interest at your bank's EAR rate and see cheaper alternatives.
| Option | Rate | Annual cost (same balance) |
|---|
Since the FCA's April 2020 reforms, banks must charge a single interest rate (EAR) for overdrafts and cannot charge higher rates for unarranged overdrafts. Most major banks converged on 39.9% EAR.
| Bank / Account | Overdraft EAR | Interest-Free Buffer |
|---|---|---|
| Lloyds Bank (standard) | 39.9% | None |
| Barclays (standard) | 35% | None |
| HSBC (standard) | 39.9% | None |
| NatWest (standard) | 39.49% | None |
| First Direct | 39.9% | £500 interest-free |
| Nationwide FlexPlus | 39.9% | £500 interest-free (£13/mo fee) |
| Monzo (tier 1) | 19% | £0 (for eligible accounts) |
| Starling Bank | 15–35% | None (rate based on credit) |
At the typical arranged overdraft rate of 39.9% EAR, a £500 overdraft used for the full month costs approximately £14.70 in interest. A £1,000 overdraft costs around £29.40 per month. These costs have risen since 2020 when the FCA required banks to simplify charges to a single interest rate.
EAR stands for Equivalent Annual Rate and is the standard way banks in the UK must quote overdraft interest since 2020. EAR compounds interest daily: a 39.9% EAR means that if you stayed permanently in overdraft for 365 days, the effective total interest would be 39.9% of your average balance. The daily rate is derived using: daily_rate = (1 + EAR/100)^(1/365) − 1.
Since the FCA's 2020 overdraft pricing reforms, most major UK banks charge between 19% and 40% EAR on arranged overdrafts. Common rates include: Lloyds, HSBC, NatWest: 39.9% EAR; Monzo: 19–39% EAR (tier-based); Barclays: 35% EAR. Some packaged accounts include overdraft facilities at lower rates.
In April 2020, the FCA's overdraft pricing reforms came into effect. Banks could no longer charge higher rates for unarranged overdrafts than arranged ones, could not charge fixed daily fees, and had to quote a single simple interest rate (EAR). For most customers with small arranged overdrafts, costs stayed similar. However, customers who previously paid low monthly fees for large arranged overdrafts saw costs rise significantly.
For short-term borrowing (a few days to weeks), an arranged overdraft can be comparable. For borrowing over several months, a personal loan at 6–12% APR is significantly cheaper than a 39.9% EAR overdraft. Use an overdraft for temporary shortfalls; use a personal loan for planned borrowing.
Using an arranged overdraft occasionally is not inherently bad for your credit score. However, regularly using your full overdraft limit suggests financial stress to lenders. Exceeding your overdraft limit or using an unarranged overdraft is a negative credit event. Keep overdraft usage below 50% of your limit and repay it as quickly as possible.
Daily overdraft interest = balance × daily_rate, where daily_rate = (1 + EAR/100)^(1/365) − 1. For a 39.9% EAR, the daily rate is approximately 0.09317%. So a £1,000 overdraft costs £0.93 per day. Our calculator does this automatically.
An unarranged overdraft occurs when your account goes below zero without an agreed facility, or when you exceed your arranged limit. Since the FCA's 2020 reforms, banks cannot charge higher rates for unarranged overdrafts than arranged ones. However, some banks may charge a monthly usage fee or simply decline transactions to prevent you going further into unarranged overdraft.
Many UK banks offer a small interest-free buffer on arranged overdrafts — typically £10 to £500. Examples include: Santander (fee-free up to £50 on some accounts), First Direct (free £500 arranged overdraft), Nationwide FlexPlus (fee-free up to £500). This buffer can save you money on small, temporary overdrafts.
Potentially yes, if you regularly use your overdraft. Switching from 39.9% EAR to a bank offering 19% EAR on the same balance can halve your annual interest cost. Current account switching is protected by the Current Account Switch Service (CASS), which guarantees a 7-day switch. Some banks also offer cash incentives (£100–£200) to switch.
Yes — a money transfer credit card lets you transfer cash from your credit card into your current account, effectively replacing an overdraft. Many 0% money transfer deals last 12–24 months. There is usually a transfer fee of 1–4%, but this is significantly cheaper than 39.9% EAR for any period beyond a few months.
Yes, banks can refuse or reduce an arranged overdraft based on your credit history, income, and current account usage. If refused, alternatives include a money transfer credit card (0% for a period), a personal loan, or a credit union loan. Building a track record of managing your account well improves your chances of being offered a higher facility.