Handy Hints: What is an Overdraft?

Helping HandIf you spend more money than you have in your bank account your bank may lend you the difference. This is known as an overdraft.

When you use an overdraft your bank will charge you fees until you pay back the difference.

Different banks charge different fees so it’s worthwhile to check what your bank account charges for your overdraft.

There are two types of overdraft: unauthorised and authorised.

Unauthorised overdrafts are usually more expensive than authorised overdrafts.

  • Authorised overdraft: an arranged overdraft with your bank that lets you borrow up to a certain amount. Normally cheaper than unauthorised overdrafts.
  • Unauthorised overdraft: where you haven’t arranged an overdraft with your bank or gone over your authorised overdraft amount. Normally more expensive than authorised overdrafts.

Fees are commonly charged on a daily basis (for example, a bank could charge £1 a day).

Each bank has a monthly maximum limit on how much they can charge you for an unauthorised overdraft in order to cut down on the number of overdrafts with spiralling costs.shop around

These limits vary by bank so you should shop around.


You may find it helpful to ensure you have at least a small overdraft authorised just in case you do happen to overdraw, even if you don’t think that you will regularly.

This is doubly so if you fear that you could overdraw more regularly since unauthorised overdrafts can get rather costly.

Overdrafts can be useful in a pinch if you do happen to go over the amount in your account, but if you find yourself frequently being overdrawn then you may have structural problems with your finances.
If so, you may find it valuable to get assistance from Citizen’s Advice or similar services.


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Please note that this is for informational purposes only and doesn’t constitute financial advice.
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