Since FCA reforms in 2020, overdraft pricing uses a single APR rather than daily fees. But arranged overdraft rates are now as high as 39.9% at some major banks — higher than many credit cards.
How UK Overdraft Pricing Works Now
Before 2020, banks charged daily fees for overdrafts. The FCA forced banks to switch to a single interest rate, making comparison easier. However, many banks set their rate at the maximum allowed.
- Post-FCA reform: single APR replaces daily fees
- HSBC, Lloyds, Halifax: up to 39.9% APR
- Monzo: 19% or 29% APR depending on account
- First Direct: £250 interest-free buffer then 39.9%
- Nationwide FlexAccount: £50 interest-free then 39.9%
- Chase UK: no overdraft facility (but 1% cashback on spending)
How to Avoid Overdraft Fees
The most reliable way to avoid costs is to build a small buffer in your current account. Knowing your typical monthly low point tells you how much of a buffer you need.
- Build a £100-£200 buffer above your typical low point
- Set balance alerts in your banking app
- Use a 0% money transfer credit card as cheaper overdraft alternative
- Switch to First Direct (£250 interest-free buffer)
- Consider Monzo's lower overdraft rate vs high-street banks
- Salary advance apps (Wagestream, Hastee): access earned pay early
What's a money transfer credit card?
A money transfer card lets you transfer its credit limit directly into your bank account, often at 0% for a promotional period. This can pay off an overdraft and let you repay interest-free.
Escaping a Permanent Overdraft
If you're permanently in your overdraft, you're paying 39.9% APR on a constant loan. The fastest route out is often a 0% money transfer credit card, which moves your overdraft onto the card at 0% for 12-24 months.
- Apply for a 0% money transfer card (check eligibility first)
- Transfer overdraft amount to current account
- Clear overdraft with current account
- Reduce arranged overdraft limit to zero to prevent reuse
- Repay credit card balance before 0% period ends
- Stop using money transfer card for purchases
- overdraft
- overdraft fees
- bank charges
- arranged overdraft
- unarranged overdraft