Overdraft Annual Cost Calculator

Bank overdrafts charge interest on the negative balance and sometimes layer on annual fees or daily-usage charges. The headline rates on arranged (authorised) overdrafts can be high, often higher than mainstream credit-card APRs, and the daily compounding nature of overdraft interest means relatively small average balances accumulate meaningful annual cost when the overdraft is used most of the year. This calculator turns the four common cost inputs, being balance, days used, APR and annual fees, into a single annual figure.

How to use it

Enter the average balance on the days the account is actually in overdraft, rather than an average across the whole year, since the days figure already accounts for the time in overdraft. Then enter the number of days per year the account spends in overdraft, the overdraft APR shown in the account terms, and any annual account fees that apply. The calculator returns the total annual cost, the interest component, the fee component, the days used, and the total cost per day in overdraft. The currency selector at the top changes formatting throughout; the math is currency-neutral.

Worked example

Take an account that averages 500 in overdraft for 200 days a year, at a 40% overdraft APR, with 50 in annual account fees. Interest works out to 500 × 40% × (200 ÷ 365) = 109.59. Adding the 50 fee gives an annual cost of 159.59, or 0.80 for every day the account is overdrawn.

That per-day figure spreads the annual fee across the overdraft days as well as the interest, which is why it sits above the interest-only figure of 0.55 a day. The fee is a fixed component, so it weighs more heavily the less the overdraft is used: at 200 days it is 31% of the total, at 100 days it is 48%, and at zero days it is the whole cost.

Halving the days in overdraft to 100 drops the annual cost to 104.79. Doubling the average balance to 1,000 with everything else unchanged raises it to 269.18. Both inputs scale the interest component proportionally, so a 10% change in either moves the interest by 10% and the total by rather less, because the fee does not move at all.

How the math works

Annual interest cost is the average balance multiplied by the APR and then by the days in overdraft over 365. Annual cost is that interest plus the annual fees. A 365-day year is assumed and leap years are not adjusted for.

The model uses simple interest on the average balance, which is a proxy rather than an exact treatment, and it is worth knowing the size of the approximation. On the loaded figures the simple calculation gives 109.59 of interest. Treating the same quoted 40% as an effective annual rate gives 101.23, and compounding a nominal 40% daily across the 200 days gives 122.45. The simple figure sits between the two, roughly 8% above the EAR treatment and 11% below the daily-compounded one, and that spread widens as the APR and the days in overdraft rise. Which of the three is correct depends on how the account terms define the quoted rate.

How overdraft pricing typically compares with other credit

Reported APR ranges vary by country, regulator, and provider. As an orientation seen across consumer-credit literature: arranged-overdraft APRs commonly run higher than mainstream credit-card APRs in many markets, and unarranged or unauthorised overdraft fees and interest are typically higher again. Some packaged current-account products include an interest-free overdraft buffer up to a small amount, though specifics depend on the product. Personal-loan APRs for the same borrower’s credit profile are often substantially lower.

Overdrafts sit inside consumer-credit law in many markets rather than outside it. EU consumer credit rules cover overdraft facilities and overrunning explicitly, setting out what has to be disclosed about the rate and the charges before an account is opened, which is where the figures to enter here come from.

What this calculator doesn’t capture

The model uses simple interest on a constant average balance and a flat day count. Real overdraft costs can include daily-usage fees on top of interest in some products, tiered rates that step up at higher balances, separate fees for going beyond an arranged limit (unarranged overdraft), and country-specific consumer-protection caps that limit total monthly cost in some jurisdictions. The figures are an estimate of the headline annual cost based on the four inputs entered; the bank’s account terms are authoritative for any specific product.