Overdraft Cost Calculator

How overdraft interest really works — and why it's so expensive

How overdraft EAR works

EAR stands for Equivalent Annual Rate. It tells you the true annual cost of borrowing, accounting for how often interest is compounded. UK bank overdrafts compound interest daily — meaning interest is added to your balance every day, and you pay interest on that interest the next day.

The daily rate derived from a 39.9% EAR is approximately 0.0882% per day. That might sound small, but on a £500 overdraft it adds up to around £0.44 every single day you're overdrawn — roughly £13 a month, £160 a year.

Why the FCA mandated EAR display (the 2020 change)

Before April 2020, many UK banks charged overdraft fees in ways that were impossible to compare — daily fees, monthly fees, per-transaction fees. A £10/month charge on a £100 overdraft works out to a staggering 120%+ APR, but it wasn't advertised that way. The FCA's overdraft reform required all banks to express overdraft costs as a single EAR figure, making it straightforward to compare across providers. Most of the big banks converged on 39.9% EAR. This is much higher than it might look: a typical personal loan for a creditworthy borrower costs 6–10% APR, and a mortgage might be 4–5%. The overdraft rate is roughly four to ten times the cost of those alternatives.

Quick reference: true cost on common overdraft amounts

At 39.9% EAR, always overdrawn:

Calculated using daily compounding at 39.9% EAR over 365 days.

When an overdraft is appropriate — and when to switch

Overdrafts are fine for: short-term cash flow gaps — a few days at the end of the month before payday, or covering an unexpected bill you can clear within a week or two. If you're only overdrawn for a handful of days a month, the absolute cost is modest.

Overdrafts are expensive for: persistent use. If you are overdrawn for most of the month, every month, you are effectively paying 39.9% EAR on a recurring loan. At that point, a personal loan, a 0% balance transfer card, or even a credit union loan will almost certainly be cheaper. A £500 persistent overdraft costs around £160/year at 39.9% EAR — a personal loan for the same amount at 9.9% APR over 24 months costs around £55 in total interest.

How to negotiate or reduce your overdraft cost

• Switch banks. Monzo, Starling, and some credit unions offer lower overdraft rates — sometimes 19–29% EAR instead of 39.9%. A straight switch can halve the annual cost.
• Use a personal loan to clear it. If you have a persistent overdraft, a personal loan at a lower rate clears it in one step and gives you a fixed repayment date. Use our personal loan calculator to model the numbers.
• Use a money transfer card. Some 0% balance transfer cards allow you to transfer funds to a current account (a "money transfer"), effectively replacing overdraft debt with 0% credit for 12–24 months. A small fee (typically 3–4%) applies but it is far cheaper than 39.9% EAR over the same period.
• Set a salary payment alert. Most banking apps let you schedule an automatic sweep from a savings account or pot to clear the overdraft when your balance drops below a threshold. Eliminating even 10 days of overdraft per month cuts the annual cost by a third.
• Ask your bank. If you have a good relationship with your bank and a solid credit history, it is sometimes possible to negotiate a lower overdraft rate or arrange a formal personal loan at a better rate through the same bank.