Overdraft basics

Overdrafts: Words we use

Words we use

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

The account provider and the customer agree in advance that the customer may borrow money when there is no money left in the account. The agreement determines a maximum amount that can be borrowed, and whether fees and interest will be charged to the customer.

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 taking into account the compounding of interest. You can use the EAR to compare rates offered by different providers.

The customer borrows money when there is no money left in the account (or when the customer has gone past their arranged overdraft limit) and this has not been agreed with the account provider in advance.

The account provider refuses a payment from the customer’s account because there is not enough money in it (or it would take the customer past their arranged overdraft limit).