The 2020 FCA rule change
Before April 2020, overdrafts had complicated fee structures — arrangement fees, per-day charges, unauthorised overdraft fees, and interest. The FCA reformed this to a single, transparent interest rate.
The result was that banks simplified the pricing but the equivalent APR became very high. What was previously hidden across multiple fees became visible as a headline interest rate.
Typical rates are now 30-40% APR. Some are higher. This is often much higher than credit cards (17-25% APR typical) and personal loans (5-15% APR typical).
Why banks price overdrafts so high
Overdrafts are unsecured, on-demand and used variably. Banks price for the risk that customers use them unpredictably and default.
The FCA reforms were meant to increase transparency, but the underlying pricing did not become cheaper — it just became clearer.
What this means practically
A £2,000 overdraft at 39.9% APR costs about £660 per year in interest if you stay in it constantly. This is a significant drag on your finances.
For people who are permanently in overdraft (using it as debt rather than a short-term buffer), this is a strong reason to consider alternatives — credit card balance transfer, personal loan consolidation, or a formal debt solution.
Alternatives to persistent overdraft use
A 0% money transfer credit card can move the overdraft debt to a fixed-term interest-free arrangement (subject to eligibility).
A personal loan at a lower rate can consolidate the overdraft into a fixed repayment plan.
A DMP, DRO or IVA can address the underlying debt if the overdraft is one of several unaffordable debts.