Overdraft query

grinder23

Hi I got an overdraft recently on my account but I get it hard to understand the fees if someone could help

It says interest is charged yearly at 11% but is that going to be 11% of everything I use from it over the course of a year or just 11% of the overdraft limit?

coylemj

11% should be the APR or the true interest rate. The actual rate could be more, some banks take the quarterly rate, multiply it by four and call that the interest rate, even though it ignores compounding.

1.11 to the power of 1/365 is 1.000286 so interest will be levied daily at the rate of 0.0286% on any outstanding balance. It's typically only added to the balance (so you will see it in your statement) every month or so but will be accumulating in the background.

Be sure to ask your bank if they expect you to go into the black every so often. If they do and you do not, it could be a black mark against you - internal to that bank only. Permanently staying in the red could cause problems if you later try to borrow from that bank.

grinder23

So if I have a €500 overdraft and end up using it 6 months in a row over a year will I get charged a lump sum interest bill of 11% of €3000?

Thanks for replying sorry just never had one before and a little worried about charges

coylemj

The limit doesn't come into the calculation, it's how much you owe at the end of each day. On days when you're in the black, there will be no interest.

But even if you never use it, note that some banks charge an annual flat fee for an overdraft 'facility', because an official will review it every year and decide whether to extend it or not. Check your bank's schedule of charges.

If you go straight into the red on day one, have a negative balance of €500 and stay there for 6 months, the interest for that 6 months will be €26.78.

grinder23

Thank you very much