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

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.

You borrow money when there is no money left in your account (or when you go past your arranged overdraft limit) and this has not been agreed with the account provider in advance.

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