About overdrafts

Overdrafts can help to smooth out your cash flow when your regular income does not match your outgoings for a short period of time. Some banks offer this 'safety net' free of charge for limited periods or amounts.

It's always better to ask your bank first if you wish to take advantage of an overdraft facility. If a bank has agreed that you can have an overdraft, you can take advantage of it at any time within an agreed period, up to an agreed amount.

Your bank may charge you a fee for setting up an agreed overdraft facility and charge you interest. Interest charges may be calculated daily, monthly, quarterly or even annually. In every case, your bank has to tell you in advance how it intends to charge, what interest rates it will apply, and how and when interest will be deducted from your account. The actual sum charged will be shown on your bank statements. It costs you nothing in interest charges if you do not use the overdraft facility. 

Top tips

• An overdraft, whilst it provides flexibility, should ideally only be used as a safety net in the short-term. Banks are not obliged to provide an ongoing overdraft facility and you will need to make sure you are in a position to repay the overdraft or keep your account in credit when the overdraft period ends.