Overdrafts
The option to withdraw more than you have in your account.
Many everyday bank accounts let you apply for an overdraft facility. This lets you withdraw more from your account than you have in it, up to an agreed limit. It can be a good idea if you regularly spend more than you have in your account, and your bank charges honour or dishonour fees when you do.
Here’s how it works
Once you’ve set up an overdraft, it’s ready for you to use when you need it. You simply write a cheque, make a direct debit payment or withdraw cash from an ATM. You can repay some or all of the overdrawn amount whenever you choose and then redraw up to your limit again when you need to. However, in most cases, the bank can insist that you repay the overdraft at any time.
Paying interest
The interest you pay is calculated daily on the amount you have overdrawn. The interest rate for your overdraft is usually made up of a base rate charged to all customers, and sometimes an extra amount is added to the base rate to reflect the specific risk of lending to you. The base rate can change from time to time. If you go over the limit of your overdraft an excess (or penalty) interest rate is added to your normal interest rate and charged on the over-limit amount.
