Overdraft Cost Calculator: What Your Overdraft Really Costs
Overdraft cost calculator: enter your overdrawn balance, days in the red and your bank's EAR to see interest per month and per year, and what you could save.
Since the FCA's overdraft rules came in on 6 April 2020, UK banks can no longer charge fixed daily or monthly overdraft fees: they charge a single interest rate, shown as an EAR, and many high street banks set it close to 40%. That sounds abstract until you put pounds on it. At 39.9% EAR, being £500 overdrawn for a whole month costs about £14 in interest, and staying that way every month adds up to about £168 a year. Enter your typical overdrawn balance, how many days a month you spend in the red and your bank's rate (it is in your banking app or overdraft terms) to see your real cost, and how much a cheaper way of borrowing would save.
Work out your overdraft interest
How overdraft interest is worked out
An overdraft rate is quoted as an EAR (equivalent annual rate), which already allows for interest being added during the year. The calculator converts it to the cost of the days you actually spend overdrawn: balance multiplied by (1 + EAR) raised to the power of days divided by 365, minus 1. That is why a short dip of a few days before payday costs far less than carrying the same balance all month.
Ways to cut the cost
- Shorten the days, not just the amount. Moving a direct debit date to just after payday can take days off each month at no cost.
- Use the buffer you have. If your account gives a slice of interest-free overdraft, set a balance alert in your banking app just above that line.
- Move long-running balances to cheaper borrowing. If you are overdrawn most of the month, compare a 0% money transfer card or a personal loan, and include any fees.
- Ask your bank for help. Under FCA rules, banks must spot customers showing signs of financial strain and offer support, such as a plan to reduce the overdraft.
