What are the rules on bank fees and overdrafts in the UK, and what can your bank charge?

By FastBuySale Newsroom · 5 Nov 2026 · 19m ago

Key overdraft and bank fee terms

Bank fees and overdrafts in the UK are governed by Financial Conduct Authority (FCA) rules that came into force on 6 April 2020. Banks and building societies must price overdrafts on personal current accounts with a simple annual interest rate, cannot charge fixed daily or monthly fees for borrowing through an overdraft, and cannot charge more for an unarranged overdraft than for an arranged one.

The FCA called these reforms the biggest overhaul to the overdraft market for a generation. Its research had found unarranged overdraft prices were regularly 10 times, and for some consumers as much as 20 times, as high as payday loans, and that 4 out of 5 overdraft users could not work out which of a range of overdraft models was cheapest.

Arranged overdraft: a borrowing limit agreed with your bank in advance on your current account.

Unarranged overdraft: going overdrawn without an agreed limit, or beyond it. Under FCA rules, it cannot be priced higher than your arranged overdraft.

Single annual interest rate: since April 2020, overdrafts must be charged using a simple annual interest rate, without additional fees and charges for using an overdraft. The FCA's impact assessment says firms must charge a single annual rate for each of arranged and unarranged overdrafts.

APR: the annual percentage rate. Banks must advertise arranged overdraft prices with a representative APR to help you compare them with other forms of credit.

Fixed fees: the FCA banned fixed fees for borrowing through an overdraft, ending fixed daily or monthly charges and fees for having an overdraft facility. The ban covers all fees for making use of, opening or maintaining an overdraft; the ban on facility fees applies to overdraft facilities up to and including £10,000.

Paid item fees: some firms used to charge a fee for each transaction approved into an unarranged overdraft. The FCA says these were no longer permitted from 6 April 2020.

Refused payment fees: fees for refusing a payment due to lack of funds are not covered by the ban, as firms are entitled to charge them under the Payment Services Regulations 2017. FCA guidance says they should reasonably correspond to the costs of refusing payments.

Readers evaluating Overdrafts should separate marketing claims from the actual rule text that governs their account or product. When two summaries disagree, the governing document or statute wins. If a rule depends on your age, filing status, or income band, re-check it when any of those facts change. Life events quietly move people across thresholds they last reviewed years earlier.

Educational explainers like this one cannot replace personalized advice for complex situations such as divorce orders, inherited accounts, or cross-border tax residency. Escalate those cases to a qualified professional. When in doubt about a number that changes every year, describe your plan qualitatively first, then look up the current official figure for the tax year you care about before you act.

What the FCA overdraft rules require

Stop banks and building societies charging higher prices for unarranged overdrafts than for arranged overdrafts.

Ban fixed fees for borrowing through an overdraft.

Require overdrafts to be priced by a simple annual interest rate.

Require arranged overdraft prices to be advertised with an APR.

Require firms to do more to identify customers showing signs of financial strain or in financial difficulty, and to develop and implement a strategy to reduce repeat overdraft use. These repeat-use rules came into force on 18 December 2019.

Tools to help you: alongside the rules, the FCA required digital eligibility tools so you can check whether you could get a cheaper overdraft elsewhere, overdraft charge calculators that translate interest rates into pounds and pence, and text or push alerts plus changes to how overdrawn balances show at cash machines.

Scope: the FCA's June 2019 policy statement (PS19/16) says its overdraft pricing remedies apply only to personal current accounts. It had proposed applying them to banks and building societies offering personal current accounts, with exceptions including private banks and credit unions and current account mortgages. Its guidance on refused payment fees, by contrast, applies to all payment service providers under the Payment Services Regulations, including accounts held by micro-enterprises.

A useful habit is to write down your goal, time horizon, and cash buffer before you change any election related to Overdrafts. Decisions made during a stressful week are the ones people reverse later at a cost. Educational explainers like this one cannot replace personalized advice for complex situations such as divorce orders, inherited accounts, or cross-border tax residency. Escalate those cases to a qualified professional.

Compare fees the same way you would compare two similar listings before you buy: look at what you pay each year, what you get, and whether a simpler option meets the same need. Readers evaluating Overdrafts should separate marketing claims from the actual rule text that governs their account or product. When two summaries disagree, the governing document or statute wins.

What changed for costs, and a worked example

The FCA said the cost of borrowing £100 through an unarranged overdraft was expected to drop from a typical £5 per day to under 10p per day. An unarranged user borrowing £100 for 7 days could be better off by as much as £55.35 a month.

Across the market, the FCA estimated 7 out of 10 overdraft users would be better off or see no change, and all of the around 14 million people who use an unarranged overdraft each year would be better off or see no change.

The trade-off: headline interest rates rose at some banks. The FCA had found customers at some large banks were charged effective arranged overdraft rates above 80% a year once fees were included. With the simpler pricing, those using arranged overdrafts for larger sums can now see the true cost.

Illustration only: if an overdraft charges an assumed 39.9% a year, borrowing £500 for 30 days costs about £14 in interest. Borrowing £500 for a whole year at that rate would cost about £200. Check your own bank's rate and use its overdraft calculator for exact figures.

Where your overdraft is expensive, the FCA encourages people to shop around and consider cheaper forms of borrowing, such as a 0% credit card, another credit card or alternative products. Compare options with the and plan repayments with the

Keep digital and paper copies of confirmations after every change. Screenshots of election pages, email receipts, and year-end statements make tax season and job changes far less chaotic. Compare fees the same way you would compare two similar listings before you buy: look at what you pay each year, what you get, and whether a simpler option meets the same need.

How to keep bank fees and overdraft costs down

Know your rate: find your arranged overdraft interest rate and representative APR in your bank's app or price list.

Turn on alerts: banks must offer text or push alerts, which help you avoid unexpected overdraft use.

Watch refused payment fees: they are still allowed, so keep a buffer for direct debits and standing orders.

Ask for help early: banks must identify customers in financial difficulty and have a strategy to reduce repeat use. If you are overdrawn every month, talk to your bank about a plan.

Check your budget: compare regular outgoings with take-home pay using the

Related UK guides: and

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If a rule depends on your age, filing status, or income band, re-check it when any of those facts change. Life events quietly move people across thresholds they last reviewed years earlier. Automation helps. Calendar reminders for annual reviews, automatic transfers, and beneficiary checkups reduce the chance that a good plan dies from neglect.

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