How overdraft pricing works today

Following regulatory reform, UK banks must now charge a single, simple annual interest rate (APR) for both arranged and unarranged overdrafts, rather than the maze of daily fees, unarranged fees and paid/unpaid item charges that used to make overdrafts hard to compare and often extremely expensive.

Arranged vs unarranged overdrafts

An arranged overdraft is agreed with your bank in advance, up to a set limit. An unarranged overdraft happens when you spend beyond your available balance (or an agreed limit) without prior arrangement — while fees are now more standardised, unarranged use can still result in the bank declining payments, and always carries some risk of impacting your relationship with the bank or your credit file.

Why overdraft rates can still be high

Even under simplified pricing, overdraft interest rates can be significantly higher than many personal loans or credit cards — because overdrafts are designed for short-term, occasional use rather than ongoing borrowing. Relying on an overdraft as a long-term borrowing method is usually one of the more expensive ways to borrow.

Cheaper alternatives for planned borrowing

If you find yourself regularly relying on an overdraft, it's worth comparing the actual cost against a 0% purchase credit card, a personal loan, or simply building a small buffer in your account over time — for planned or ongoing borrowing, these are often considerably cheaper than persistent overdraft use.

Reducing reliance on an overdraft

  • Set up low-balance alerts through your banking app to catch dips before they happen.
  • Build even a small buffer over time to reduce how often you dip into the overdraft at all.
  • Review whether recurring overdraft use points to a wider budgeting gap worth addressing directly.

Key takeaways

  • UK overdrafts now use a single simple annual interest rate, replacing older complex fee structures.
  • Overdraft rates can still be high, even under simplified pricing.
  • For ongoing or planned borrowing, other options are often considerably cheaper than an overdraft.
  • Low-balance alerts and a small buffer can reduce reliance on dipping into an overdraft.