You may be aware that the rule son charging for overdrafts has now changed in the UK. It is important to make sure that you are up to speed with these new rules. They have been in force for quite a while, but if you have not kept up to speed you need to know what is going on with them. It is a good idea to make sure that even if you do not have an overdraft or have one that you do not use, that you are aware of the new rules so that when you are deciding whether to take out an overdraft or whether to repay yours, you will be fully aware of the new terms and conditions.

Authorised versus Unauthorised

It used to be the case that you would be offered a certain amount of money to borrow by the bank and that would be called an authorised overdraft or sometimes an arranged overdraft. If you borrowed that amount or less then you would get charged a certain amount for interest and possibly a fee as well. However, if you borrowed more than that then you would get additional fees and possibly a higher interest rate. These varied between different lenders and it was deemed to be confusing for borrowers as well as being very expensive and so laws were brought it to change the whole system. Not authorised is the only choice and you cannot borrow more than you are offered as the payments will be refused.

Fees and Charges

When you had an overdraft in the past, the bank could charge you fees. They tended to make a charge per month that you had an outstanding overdraft and if you borrowed more money than they had arranged with you then they would charge you more. Some would charge per day. The meant that an overdraft could have potentially been one of the most expensive ways to borrow money. However, there are now rules that there are no charges allowed for overdrafts anymore, just interest which means that it is much easier for borrowers to be able to compare the different overdrafts and easily see which is cheaper.


Due to the overhaul in the overdraft system there are now interest rates set which cover everything. This that they are significantly higher than they used to be, but it is much easier to work out how much you will have to pay and compare lenders. Rates tend to vary between 35% and 40% which is a yearly charge. This seems high but when you compare it to other loans, you will see that it is higher than some but less than others.

Other Differences

You may also find that your lender will have made other changes as well to how their overdrafts work, how much they let you have and things like this. If you have not used your overdraft since the changes came in, it will be a good idea to check them out and see whether there are any new features that you need to be aware of. Make sure that you do not use your overdraft the same way as you did before until you have checked all of this out. It is wise to be clear on this even if you do not have an overdraft at the moment or do not intend to take one. You never know when your circumstances might change and that could mean that you will need to borrow in the future. It would be handy to understand the overdraft and how it works so that you can compare it to your other borrowing options in order to decide whether it will be the right choice for you.