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Bank overdrafts

This advice applies to Northern Ireland

About bank overdrafts

This information tells you what a bank overdraft is and gives some tips about how to avoid getting overdrawn without permission.

Agreed overdrafts

You can ask a bank to agree that you can take more money out of your bank account than what’s in there. This is called an agreed or authorised overdraft. The overdraft may be for a fixed amount over a set period, for example £500 to be repaid within six months. Or you may be given a limit on an ongoing basis to use whenever you like.

You’ll be charged interest every day on the amount you overdraw. You may also have to pay an administration fee or arrangement fee when you set up the overdraft.

No written agreement is needed for an overdraft but the bank will usually write to you confirming the arrangement.

If you go over your agreed limit, the bank may return (bounce) cheques or other payments and you will be charged additional fees and interest. So it's a good idea to let the bank know in advance if you need to increase your overdraft.

Going overdrawn without agreement

If you go overdrawn without agreeing this with the bank first, its called an unauthorised overdraft. Try to avoid this happening as it's a lot more expensive than an agreed overdraft. You will usually be charged a much higher interest rate and also a daily fee. The bank will usually return (bounce) any cheques you write and other payments such as direct debits from your acccount. You'll be charged extra for unpaid items.

To avoid this happening, keep a record of everything you pay out of your bank account, including cash withdrawals, direct debits and standing orders. Keep a careful check on the amount in your account (the balance) and try to remember to check your bank statements as soon as you get them.

If you think you might go overdrawn, get in touch with the bank straightaway to make an agreement.

What to do if you have problems paying off your overdraft

If you can't pay off your overdraft or find yourself relying on it long-term, you may have financial difficulties. Speak to the bank about your options. The Lending Code says that the bank should treat you sympathetically. If you think your bank is not not doing this you can make a complaint to the Financial Ombudsman Service.

For more information about the Lending Code and what your bank should do, see Banks and building societies.

If you are struggling to pay back an overdraft or have other debts, you can get help from an adviser, for example at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

Further help and information

On Adviceguide

For more information about different ways of borrowing money and getting credit, see Types of borrowing.

You may also find the following Adviceguide information helpfull

The Money Advice Service

The Money Advice Service is a free, independent service. Their website (www.moneyadviceservice.org.uk) has lots of useful information about borrowing and managing your money.

Go to their website for more information about:

Moneysavingexpert

www.moneysavingexpert.com.

Financial Ombudsman Service (FOS)

www.financial-ombudsman.org.uk.

British Bankers' Association

www.bba.org.uk.

Lending Standards Board

www.lendingstandardsboard.org.uk

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