UK banks charge overdrafts as a single interest rate, quoted as an EAR (equivalent annual rate), with no fixed fees since the 2020 rules. At a typical 39.9% EAR, £500 overdrawn for 14 days costs about £6.48; permanently overdrawn by £500 costs around £200 a year. Enter your own figures below.
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How the cost is worked out
EAR is the yearly rate including compounding. The daily rate is (1 + EAR) to the power of 1/365, minus 1. At 39.9% EAR that is about 0.092% a day. The cost for a period is the balance multiplied by (1 + daily rate) to the power of the days, minus the balance. Banks calculate on the actual end-of-day balance, so the figure here assumes a constant balance and is a close estimate rather than a bill.
Example: £500 for 14 days at 39.9%
Daily rate 0.092%, so 14 days compounds to about 1.3%, or £6.48. Dip in for a few days each month and it is a coffee habit. Stay permanently overdrawn by £500 and it is around £200 a year, more than many people pay for their phone.
Arranged, unarranged and the 2020 rules
Since April 2020 the FCA requires banks to charge a single interest rate for arranged overdrafts, quoted as an EAR, with no daily or monthly fees, and to price unarranged overdrafts no higher than arranged ones. Most high street banks settled around 35% to 40% EAR, with some interest-free buffers of £10 to £250. Check your own rate in the app or on your statement.
Getting out of a persistent overdraft
Find the cause: import your statement and see which categories push you under before payday. The spend-per-day calculator helps with the last week of the month.
Use any interest-free buffer your bank offers, and ask about a lower rate; some accounts offer one.
Move the balance to a 0% money transfer card if you qualify, then clear it before the promotional period ends.
Reduce the limit as you go so the overdraft stops being part of your normal income.
The Income TrackerSee which week of the month pushes you into the red.
At 39.9% EAR, about 9p a day per £100 overdrawn. £500 costs roughly 46p a day, £1,000 about 92p a day.
What is EAR on an overdraft?
Equivalent annual rate: the yearly interest rate on borrowing, including compounding, with no fees. UK banks must quote overdrafts this way so rates can be compared.
Is an overdraft cheaper than a credit card?
Usually not. Typical overdraft EARs of 35% to 40% are above most standard credit card APRs, and far above a 0% deal. Overdrafts are convenient for a few days, expensive for months.
Are unarranged overdrafts more expensive?
Not by rate; since 2020 they cannot be charged at a higher rate than arranged ones. Payments may be refused instead, which can cost you elsewhere.
Sources and checking
Facts on this page were last checked on 2026-09-16 against: