How Much Does an Overdraft Cost? The Debt You Forget

5 min read · October 28, 2026

An overdraft is a loan inside your bank account, and you pay for every day you stay below zero. Sitting €800 overdrawn all year at an example rate of 39.9% costs about €319 in interest, close to €1 a day.

What is an overdraft?

Overdraft is money you borrow by spending more than you have in your current account.

MoneyHelper, a UK government-backed money service, calls it “a type of loan that often has interest”. It says an overdraft is meant for emergencies or as a short-term option.

There are two kinds:

Arranged: you agree a limit with your bank first, and you can spend down to that limit.
Unarranged: you go below zero, or past your limit, without agreeing it first.

Ireland’s consumer protection agency, the CCPC, says going past your limit can carry much higher rates. Rules differ from country to country, so check your own bank’s terms.

Why doesn’t an overdraft feel like debt?

Because it lives in the same place as your salary. There is no separate account, no statement that says “loan”, and often no fixed payment.

When your pay comes in, the balance jumps up. It feels like the debt is gone. Then the month’s spending pulls it back below zero. If that happens every month, you are borrowing the same money again and again.

The CCPC advises against using an overdraft for regular, ongoing costs, because this can lead to higher costs and debt.

How much does an overdraft cost?

The CCPC says interest is charged on the amount you owe at any time. So the cost depends on two things: how deep you go, and how long you stay there.

Rates vary a lot. As of October 2026, MoneyHelper says overdraft rates at UK banks range from 19% to 40% or more. The CCPC gives about 11% to 15% for Ireland. Your rate is on your account terms.

Some overdrafts also have fees on top of interest. The CCPC lists set-up fees, renewal fees and fees for each payment over your limit. The US regulator, the CFPB, says many US banks charge $30 or more for each payment that takes an account below zero.

What does €800 overdrawn really cost?

Say you are €800 overdrawn every day for a year. The example rate is 39.9% a year. (Example only. Rates vary by bank and country.)

Formula, in words: cost per day equals the amount overdrawn times the yearly rate, divided by 365.

Step 1. Cost per day: 800 × 0.399 ÷ 365 = about €0.87.

Step 2. Cost per 30 days: 0.87 × 30 = about €26.

Step 3. Cost per year: 800 × 0.399 = about €319.

That is €319 a year for money you may not even think of as borrowed. This assumes the interest is paid each month, so the €800 doesn’t grow. If unpaid interest is added to the overdraft, the cost is a bit higher.

(For more on turning yearly rates into daily and monthly ones, see monthly vs yearly rate.)

How do you get out of an overdraft?

Treat it like any other debt: one fixed payment a month, and no going back below zero.

For the same €800 at 39.9% a year, the monthly rate is 39.9 ÷ 12 = 3.325%. Interest is added each month, then you pay:

Pay down each month	Time to clear	Total interest
€50	24 months	€361
€100	10 months	€146
€150	6 months	€95

At €100 a month, you are out in 10 months. Compare that with €319 a year for staying where you are.

Two things make it stick:

Lower your limit as you go. Each time you pay €100 off, ask your bank to cut the limit by €100. Australia’s government money site, Moneysmart, suggests cancelling the overdraft once it is repaid and no longer needed.
Make the payment automatic. Move the money on payday, before you spend.

MoneyHelper also says using savings to clear an overdraft is usually cheaper in the long run. If the overdraft is large and you can’t clear it quickly, a cheaper form of borrowing may cost less. See personal loan vs credit card for how to compare.

Can the bank take it away?

Yes. Moneysmart, in a 2011 factsheet, says overdrafts are usually repayable on demand, so the lender can ask for the full amount at once. MoneyHelper says a bank could withdraw an overdraft, especially if it sees heavy use.

That is a good reason to clear it on your own terms, before someone else picks the date.

Do this today (10 minutes)

Open your banking app. Write down your overdraft limit, your rate, and how far below zero you went last month.

Work out your cost per day: amount overdrawn × yearly rate ÷ 365.

Set a fixed monthly pay-down, even €50, and ask your bank to lower your limit by the same amount.

Nada does this maths for you. Add your overdraft as a debt, set your payment, and see the day you reach zero. Get Nada

(New to interest? Start with what is interest.)

FAQ

Is an overdraft a loan? Yes. MoneyHelper describes an overdraft as a type of loan that often has interest. It sits inside your current account, so it can feel like your own money. But anything below zero is borrowed, and it costs money for as long as you stay there.

What is the difference between an arranged and an unarranged overdraft? An arranged overdraft has a limit you agreed with your bank in advance. An unarranged one is when you go below zero, or past your limit, without agreeing it first. Unarranged borrowing can carry higher rates or extra fees, depending on the bank and the country.

How do I get out of my overdraft faster? Pick a fixed amount to pay down each month and treat it like a bill. Then lower your limit by the same amount so you can’t slide back. In the example, €100 a month clears €800 in 10 months. €150 a month clears it in 6 months with less interest.

Can my bank ask me to repay my overdraft? Often, yes. Australia’s government money site says overdrafts are usually repayable on demand, so the lender can ask for the full amount at once. MoneyHelper notes a bank can also withdraw an overdraft. That is one reason not to rely on it as long-term borrowing.

Sources

Read in October 2026.

Written by the Nada team. Reviewed October 2026.

This is general information, not personal advice.

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