Overdraft basics

Overdraft glossary

Overdraft Glossary

The information in this guide was last updated on 26/02/2014

Where the building society or bank agrees you can have an arranged overdraft, and agrees a limit with you.

The amount of arranged overdraft the bank or building society has agreed you can have in advance.

Some banks and building societies offer a buffer – a small amount over your arranged overdraft which allows you to make transactions without taking you into an unarranged overdraft. The ‘buffer’ is a set amount which spans across all customers’ accounts and is treated as if it is the arranged overdraft.

The maximum amount of fees you can incur in a calendar or statement month.

This stands for Equivalent Annual Rate. It’s the cost of an overdraft stated as a yearly rate. You can use the EAR to compare rates offered by different providers.

A credit service that allows you to spend more money from your current account than you have in it.

The amount up to which the building society or bank is prepared to pay transactions above your arranged overdraft limit. The ‘reserve limit’ is a set ‘unarranged’ amount dependent on the customer’s individual circumstances. It gives a bit more flexibility, but at a cost to the customer.

Where you borrow without the agreement of your bank or building society, up to a reserve limit they may set on your account.

If you make a transaction that takes you over your reserve limit (even if your account is in credit) it will be returned unpaid (bounced).