Since the FCA overdraft reforms, many UK banks charge a single interest rate that still makes overdrafts one of the most expensive everyday borrowing options. Even a small balance can become expensive if it stays overdrawn for long enough.
BORROWING COST
Overdraft cost calculator
Estimated result
£32.79
- Balance
- £1,000
- Daily equivalent
- £1.09
- Annual rate
- 39.9%
Assumes a constant balance and excludes unarranged-overdraft or account fees.
See what your arranged overdraft is really costing you per day, month and year so you can judge whether to repay, switch or refinance.
Since the FCA overdraft reforms, many UK banks charge a single interest rate that still makes overdrafts one of the most expensive everyday borrowing options. Even a small balance can become expensive if it stays overdrawn for long enough.
If someone is £800 overdrawn at 39.9% EAR, the daily cost is about 74p. Used for 20 days in a month, that is roughly £14.80 for the month and around £178 a year to keep the buffer open. A cheaper loan or 0% transfer can cut that cost sharply.
- Treating the overdraft as free because the balance is small.
- Looking only at the monthly cost and ignoring the annualised EAR.
- Comparing the overdraft with a new loan before checking the fee and repayment term on the alternative.
The useful overdraft question is not just “what is the rate?” but “what is the balance costing me if it stays in place?” A small arranged overdraft can still be an expensive form of short-term borrowing.
Daily cost£1
Monthly cost£17
Annual cost£319
Balance checked£800
At 39.900000000000006% EAR, an £800 overdraft costs about £1 a day. Used for 20 days in a month, that is about £17.
When an overdraft stops being a short-term buffer
An overdraft is usually only defensible when the balance is small and short-lived. If the balance stays in place for weeks or months, the annual cost becomes more important than the daily amount and a cheaper borrowing option may be better.
Use this page alongside the loan early repayment tool if you are choosing where to direct extra cash. If the overdraft is just covering a move or a one-off bill, compare it with the moving budget and salary tools before deciding whether to close it or keep it temporarily.
SOURCES & REVIEW
Checked against official guidance
Last reviewed 1 September 2026 · Rule version GB-2026.27.1
Daily/weekly source monitoring. If a source changes, the affected rule set is reviewed before publication.
All source links are kept visible so you can verify the figures used on this page.
Source line: Source: FCA overdraft pricing guidance and published bank EARs.
FCA: Overdrafts ↗Sources, methodology and update policy →Report an issue or correction →WHY RESULTS DIFFER
Why two users can see different results
Why the result can differ
Different tax codes, payroll periods, Scottish bands, pension methods or lender assumptions can change the outcome.
One-off bonuses, pay frequency, overpayments, allowances and reliefs can move the result away from a simple annual estimate.
Where a rule depends on eligibility or legal status, this page shows an estimate and links to official guidance.
This section is intentionally repeated on key tools so the explanation stays near the result instead of being hidden in a separate policy page.
COMMON QUESTIONS
Frequently asked questions
How is overdraft interest calculated?
It is usually charged daily on the amount actually overdrawn, which makes the balance and the number of days just as important as the rate.
What does 39.9% EAR mean?
EAR is the annualised cost of the overdraft, including compounding, so it can be compared with other borrowing rates.
Why are overdraft rates so high?
The FCA removed old fee structures and banks largely repriced overdrafts around a single high rate for short-term borrowing.
Is an overdraft worse than a credit card?
Usually yes, because typical card rates and 0% offers are often cheaper than a long-running overdraft.
How do I get out of a persistent overdraft?
Move the balance to cheaper credit, agree a repayment plan, or reduce the limit gradually if you are using it as a buffer.
Does using an overdraft affect my mortgage application?
It can. Lenders usually look at committed borrowing and how regularly you use the overdraft when assessing affordability.