AI agents for business finance: what they can and can't do
What AI agents can do in bookkeeping, close, collections and compliance today, where a person must stay in charge, and how to judge a product.
The short answer
Since April 2020 the FCA has required banks to price overdrafts with a single annual interest rate, advertised with a representative APR, to stop charging fixed fees for overdraft borrowing, and to charge no more for an unarranged overdraft than an arranged one. Your cost is the interest on what you are overdrawn, for as long as you are overdrawn.
Many newcomers open a UK current account and find an overdraft attached. Slipping into it for a few days before payday is common. The rules changed in April 2020, which means older advice about daily fees and monthly charges no longer applies. Here is how overdraft pricing works now.
The April 2020 rules
The FCA summarised the rules in an April 2023 update. Banks must:
- stop charging fixed fees for overdraft borrowing
- charge no more for an unarranged overdraft than an arranged one
- price overdrafts with a single annual interest rate
- advertise overdrafts with a representative Annual Percentage Rate
The FCA estimated customers saved more than £500 million from these pricing rules, with each customer with an arranged overdraft, or access to an unarranged one, saving on average £17.40 in 2021.
Arranged and unarranged
- Arranged overdraft
- A limit agreed with your bank in advance. You can borrow up to it.
- Unarranged overdraft
- Going below zero or past your limit without agreement. The bank may refuse payments instead. Under the 2020 rules it cannot cost more than arranged.
- Representative APR
- The rate a bank advertises so you can compare. Banks may offer you a different rate based on your circumstances.
Working out the cost
Interest is charged on the amount you are overdrawn, for the days you are overdrawn. Banks calculate daily and add interest monthly, so the exact figure differs from simple arithmetic, but a rough estimate helps.
Worked example (example rate, not a current offer)
Example: an overdraft priced at 39.9% a year, and you are £500 overdrawn for 30 days.
- Daily rate: 39.9% ÷ 365 ≈ 0.109%
- Interest: £500 × 0.399 × 30 ÷ 365 ≈ £16.40
Stay overdrawn by £500 for a whole year at that rate and the cost approaches £200. An overdraft is designed for short gaps. Your bank's app or statement shows your own rate and the interest charged.
Compared with a payday loan
For comparison, the FCA caps payday loans at 0.8% a day of the amount borrowed. On £500 for 30 days that ceiling is £120. An overdraft at the example rate is far cheaper for the same gap, though both are expensive if used for long.
Why newcomers are often offered overdrafts
A new account with a thin credit file may come with a small arranged limit, or none at all. Either way the rules above apply. If you do not want to borrow, ask the bank to remove the arranged limit; payments that would take you below zero may then be refused rather than paid. That avoids interest but brings the risk of a failed payment, so decide which you would rather manage.
If your income arrives on a fixed date and your rent leaves a few days earlier, the overdraft may be doing the work of a timing fix. Ask your landlord to move the rent date to after payday; that one change can end regular overdraft use without any extra money.
Things to watch
- Interest-free buffers: some banks give the first part of an overdraft free; check yours.
- Refused payments: if a bank refuses a payment rather than letting you go unarranged, a direct debit may fail and the company you owe may charge you.
- Credit file: overdraft use is part of your account history; heavy, long-term use can affect how lenders see you. See building a UK credit score.
- Sending money home: transferring out more than your balance to cover family needs puts the overdraft cost on top of the transfer cost.
Steps if you are overdrawn now
- Check your rate in the app.
- Work out the daily cost on your current balance.
- Move any spare money in to reduce the balance, even before payday.
- If you will need it for months, speak to the bank about a cheaper option.
- If you have several debts, contact a free debt charity.
For other short-term borrowing, see our guides on payday loans and overdrafts and payday loans abroad.
Where Pryme fits
Pryme does not offer UK overdrafts. If you keep money in more than one currency, a multicurrency account lets you see your GBP balance before you send money home, so a transfer does not tip your UK account into the red.
This page explains the FCA's published rules. It is not financial advice.
Questions people ask
Do UK banks still charge daily overdraft fees?
No. Since April 2020 the FCA rules require banks to stop charging fixed fees for overdraft borrowing and to charge a single annual interest rate instead.
Is an unarranged overdraft more expensive?
It cannot cost more than an arranged overdraft under the April 2020 rules. The bank may still refuse a payment instead of letting you go overdrawn.
How much does a £500 overdraft cost for a month?
It depends on your rate. Example: at 39.9% a year, about £16.40 for 30 days. Check your own rate in your bank's app.
Does using an overdraft hurt my credit score?
Overdraft use is part of your account history. Occasional short use is common; long-term heavy use can affect how lenders see you.
Sources
- Millions of customers together save nearly £1billion due to overdraft rule changes (Financial Conduct Authority) · accessed Oct 2026
- FCA confirms price cap rules for payday lenders (Financial Conduct Authority) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.