# Overdrafts

> Arranged and unarranged overdrafts explained, how the FCA’s single-interest-rate reform changed overdraft charges, and how to cut the cost.

Canonical page: [/credit-borrowing/overdrafts](/credit-borrowing/overdrafts/) · Last reviewed: 2026-08-22

An overdraft lets you spend more than the balance in your current account, up to a limit. It is a form of borrowing, and since 2020 it has been priced as a simple annual interest rate.

## Key information

- An overdraft is borrowing through your current account, and it has a cost
- An arranged overdraft is agreed in advance; an unarranged one is going overdrawn without agreement
- Since April 2020 banks must charge a single annual interest rate, not daily or fixed fees
- Overdraft rates can be high, so it is often not a good way to borrow long term

## Arranged versus unarranged overdrafts

An arranged overdraft is a borrowing limit your bank agrees with you in advance. An unarranged overdraft happens when you spend beyond your balance (or beyond your arranged limit) without agreeing it first. Banks can also refuse payments that would take you into an unarranged overdraft.

Both are borrowing and both cost money, but they are now charged in the same way rather than through the separate fees that used to make unarranged borrowing especially expensive.

## How overdraft charges changed

The FCA reformed overdraft pricing, with the main rules taking effect on 6 April 2020. Banks must now charge for overdrafts using a single annual interest rate, expressed as an [APR so you can compare it with other borrowing](/credit-borrowing/apr-explained). They can no longer charge fixed daily or monthly fees, and they cannot charge more for an unarranged overdraft than for an arranged one.

- Overdraft costs are shown as an annual interest rate and an APR
- Fixed daily and monthly overdraft fees were removed
- Unarranged overdrafts cannot cost more than arranged ones

## The real cost of an overdraft

Even as a single interest rate, overdraft borrowing can be expensive — some headline rates are considerably higher than on other forms of credit. An overdraft can be useful as a short-term buffer, but relying on it month after month is usually a sign it would be cheaper to look at another option or to seek free money guidance.

## Reducing the cost

If you regularly use your overdraft, it is worth checking whether [a cheaper form of borrowing](/credit-borrowing/personal-loans) would cost less, and whether your bank offers a fee-free buffer or a formal repayment plan. If you are struggling, your bank should treat you fairly and discuss support — you do not have to wait until you miss payments to ask.

## Your rights

- Banks must price overdrafts as a single annual interest rate and cannot charge more for unarranged than arranged overdrafts.
- Your bank must monitor for signs of financial difficulty and offer appropriate support.
- You can complain about overdraft charges and escalate an unresolved complaint to the Financial Ombudsman Service free of charge.

## Official sources

- [FCA — changes to overdraft charges](https://www.fca.org.uk/data/changes-overdraft-charges)
- [MoneyHelper — free money guidance](https://www.moneyhelper.org.uk/en/everyday-money/banking)
- [Financial Ombudsman Service](https://www.financial-ombudsman.org.uk)

## Related

- [Bank Charges](/banking-savings/bank-charges/)
- [APR Explained](/credit-borrowing/apr-explained/)
- [Problems Repaying Credit](/credit-borrowing/problems-repaying-credit/)
- [Budget Planner](/tools-calculators/budget-planner/)

## Sources

- FCA — [Changes to overdraft charges](https://www.fca.org.uk/data/changes-overdraft-charges) (accessed 2026-08-22)
- FCA — [CONC 5C.2 — charges for overdrafts to be interest rates](https://www.handbook.fca.org.uk/handbook/CONC/5C/2.html) (accessed 2026-08-22)