Is your account in the red?
18/06/2026
If you have a current account, your bank may allow payments you’ve authorised to go through even when there isn’t enough money in the account to cover them. This is known as an overdraft and, in practice, it means the bank is extending you credit.
There are two types of overdraft.
An arranged overdraft: The details of an arranged overdraft are set out in your account agreement, by which the bank agrees to provide credit through an overdraft facility up to a specified limit. This requires you to agree to it. If no overdraft facility has been agreed, there should be no arranged overdraft.
An unplanned overdraft: In this case, the bank allows a payment to proceed even though there isn’t enough money in the account. This may help you avoid unnecessary inconvenience, such as direct debits bouncing. Although there is no prior agreement in place, this is a common banking practice.
In general, banks don’t need the account holder's authorisation before allowing an unplanned overdraft. However, it is considered good practice for banks to give customers the option to opt out.
From time to time, a simple oversight or an unexpected expense may leave you relying on an overdraft to meet your payment obligations. If that happens, there are a few things you should know as a customer.
- Your bank may charge the fees and interest set out in your account agreement.
- Overdraft[Q31] fee
- The maximum legal amount the bank can charge you can’t be more than two and a half times the statutory interest rate.
- Charges are generally calculated on the highest overdrawn balance during the relevant settlement period.
- They can’t be combined with an arrangement fee or any similar charge.
- They don’t apply to technical overdrafts.
- What’s more, an overdraft fee can’t be charged more than once during the same settlement period, even if the account gets overdrawn several times.
- Your bank must also give you enough information to verify that any charges applied are correct, including:
- How much time you have to bring your account back above zero, including the minimum period the bank must provide.
- The possible impact of debt-recovery charges if the overdraft is not cleared.
- It’s also important to know that an account shouldn’t be overdrawn simply because a fee has been charged on an inactive account or because funds have been legally frozen.
Overdrafts can be an expensive form of borrowing and shouldn’t be relied on as a regular source of finance. Before using one, think about what other options are available to you.
And remember: you can tell your bank not to make payments or honour direct debits when you don’t have enough money in your account. You can do this either when you open the account or at any later date.
