Overdraft Cost Calculator
Calculate the interest cost of using your overdraft. Most UK banks charge ~39.9% EAR.
Source: FCA — Overdrafts
By Konstantin Iakovlev · Founder, Calks.uk
Last updated: · Verified against HMRC and GOV.UK 2026/27 rates
Most UK banks: ~39.9% EAR
Interest for 30 days
£16.40
£0.55/day · ~£16.64/month
At 39.9% APR, borrowing £500.00 for a full year costs £199.50.
Since 2020, most UK banks charge a single simple interest rate on overdrafts (typically ~39.9% EAR).
Disclaimer
This calculator is provided for informational purposes only and should not be considered as financial or tax advice. All calculations are performed locally in your browser — no personal data is collected or sent to our servers. Rates and thresholds are sourced from HMRC and GOV.UK and are updated for the current tax year. Always verify results with HMRC or consult a qualified professional before making financial decisions.
How It Works
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.
Unarranged overdrafts can no longer attract higher charges than arranged overdrafts. However, banks may still refuse transactions that would take you beyond your arranged limit. If your account goes into an unarranged overdraft, you are charged the same EAR as the arranged rate.
This calculator shows the daily and monthly cost of using your overdraft at a given EAR and balance. It helps you compare whether an overdraft is cheaper or more expensive than alternatives such as a credit card or personal loan for short-term borrowing.
How UK overdraft charges work. Since April 2020 FCA reform: all overdrafts charged as APR — typically 35-40% APR (some banks 39.9%). Replaced complex daily fees + monthly charges system. Interest accrues daily on outstanding overdraft, charged monthly. £500 overdrawn at 39.9% APR for a full month: £16/month. £1,000 for a month: £32. £1,000 used for 5 days/month: £5. Calculate: daily rate = APR ÷ 365 = 0.109%. Monthly cost = daily rate × balance × days used.
Authorised vs unauthorised overdraft. Pre-2020 distinction abolished — same APR applies to both. Now: unauthorised use can still result in: declined transactions (£10-£30 each at some banks), payment refusal fees, late payment marks on credit file, account closure. 'Soft' limit breach often tolerated by banks for accidental overruns. Repeat unauthorised use damages credit score: visible on credit file 6 years. Better than 'unauthorised' fees: small loan, 0% credit card spend, family loan — many cheaper sources.
UK current accounts with cheapest overdrafts. First Direct 1st Account: £250 interest-free overdraft (most generous of any current account). Nationwide FlexAccount: £250 interest-free for first 12 months. Starling Bank: 15% APR (lowest non-introductory rate). Monzo, Chase, Revolut: not all offer overdrafts, varies. Most high-street banks: 35-39.9% APR after introductory periods. Always check: arrangement fees (most banks no longer charge); minimum monthly funding requirements (often £1,000+).
When overdraft beats alternatives. Best for: very short-term (1-7 day) gaps; emergency expense before pay day; occasional planned overdraft up to interest-free limit. WORSE than: 0% balance transfer card (24+ months interest-free); regular bank loan (8-12% APR); employer salary advance (now offered by ~30% UK employers); even credit card minimum payment (18-25% APR much better than 39.9% overdraft). Compare: £1,000 overdrawn for 6 months = £200 interest. Same amount on credit card paid £200/month: £80 interest.
Escaping the overdraft trap. Strategy: borrow £500-£1,000 short-term loan or move to 0% credit card; pay off overdraft; cancel overdraft facility (or reduce limit progressively); rebuild from there. Live below salary — even £20/month buffer prevents drift back. UK average UK person uses overdraft 2-3 times/year (FCA 2023 data); 20% of overdraft users borrow continuously for 12+ months (most expensive way to borrow). Switch banks: Switch Service moves direct debits in 7 working days; many banks pay £150-£200 to switch (boosts buffer).
Example: £1,000 overdraft at 39.9% EAR
- Daily equivalent rate: 39.9% ÷ 365 = approx. 0.109% per day
- Cost for one month (30 days): approx. £32.70
- Cost for three months: approx. £98.10
- Annual cost if balance remains at £1,000: approx. £399
Source: FCA — Overdrafts
Frequently Asked Questions
- Why UK overdrafts cost 40% EAR.
- FCA reforms (April 2020) require all banks to charge a single representative APR — banning daily fixed fees, monthly fees, and tiered rates. Most major UK banks now charge 35-49.9% EAR (Lloyds 39.9%, Barclays 35%, HSBC 39.9%, NatWest 39.49%). More expensive than most credit cards (20-25% APR) but cheaper than payday loans. The 'flat APR' is meant to make costs transparent — but most consumers don't realise overdrafts are now this expensive.
- Will using my overdraft damage my credit score?
- Regular use within agreed limit usually doesn't directly damage score, but consistently using >50% of overdraft signals financial stress to other lenders. Maxing out (100%): -50 to -100 score points temporarily. Repeat unauthorised overdraft use: yes, damages score and may appear as 'arrears'. Best practice: use as short-term emergency tool, clear within 2-3 months, keep balance below 30% of limit.
- Cheaper alternatives to a permanent overdraft.
- (1) 0% money-transfer credit card — moves cash to current account at 0% for 18-24 months (3-4% fee); (2) Personal loan at 8-12% APR — cheaper than 40% overdraft EAR; (3) Credit union loan at 12.7-26.8% APR; (4) Switch banks: First Direct (£250 free buffer), Nationwide (£500), Starling (£1k arrange-free); (5) Family loan — informal but document terms. Always cheaper than 40% overdraft for ongoing borrowing.