# Overdrafts: arranged, unarranged and what the FCA rules say

> An overdraft lets you spend more than is in your current account. This guide explains arranged and unarranged overdrafts, how the Financial Conduct…

- URL: https://centiview.com/uk-money/overdrafts-arranged-unarranged-and-the-fca-rules
- Published: 2026-10-14T23:38:00.000Z
- Figures checked: 2026-10-14
- Edited by David A
- Topic: Banking (UK)
- Publisher: Centiview (Persie Ltd, London)
- General information only, not financial advice

An overdraft lets you spend more than is in your current account. This guide explains arranged and unarranged overdrafts, how the Financial Conduct Authority limits the way they are priced, and the help available if one becomes hard to manage.

## What an overdraft is and the two types

An overdraft is a form of borrowing attached to a current account: if you spend more than the balance, the account goes below zero and you are borrowing from the bank. There are two kinds. An arranged overdraft is one you agree with the bank in advance, up to a set limit. An unarranged overdraft happens when you go overdrawn without that agreement, or go past your agreed limit. Banks do not have to allow an unarranged overdraft, and may refuse the payment instead. The Financial Conduct Authority (FCA), the regulator of UK consumer credit, applies the same overdraft rules across England, Scotland, Wales and Northern Ireland, so the pricing rules below do not differ by nation.

## How the FCA says overdrafts must be priced

Since April 2020 the rulebook (the FCA Handbook, chapter CONC 5C) has required overdraft charges to take the form of an interest rate expressed as a percentage on an annual basis. In its 2023 review the FCA described the changes this way: firms had to stop charging fixed fees for overdraft borrowing, charge no more for unarranged overdrafts than for arranged ones, use a single annual interest rate, and advertise overdrafts with a representative APR (the annual percentage rate, a standard way of showing the yearly cost of borrowing). Under CONC 5C.3.1R the rate on an unarranged overdraft must not exceed the rate on the arranged overdraft, and CONC 5C.3.2R says a charge that breaks that rule is unenforceable.

## Fees, single rates and the £10,000 point

The Handbook guidance in CONC 5C.2.2G adds detail. A firm is forbidden from charging a fee for making an arranged overdraft available unless the facility is above £10,000. It also says there must be a single, uniform contractual rate of interest for an individual customer, so a bank cannot use stepped tiers for one person. A firm also must not make a customer pay more than one arranged overdraft charge, or more than one unarranged charge, arising out of the same event (CONC 5C.2.1R(5)). Guidance says a charge falls outside these rules if its occurrence and amount are not affected by overdraft use, and a monthly account charge could be an example. These rules are about how charges are structured, not about how high the interest rate may be, so the rate itself is set in each bank's terms.

> **Key numbers** Pricing rules in force from April 2020. Fee for providing an arranged overdraft is barred unless the facility exceeds £10,000. Repeat-use rules: customers overdrawn in every month of the preceding 12 months are likely to count as repeat users. Sources read 14 October 2026.

## A worked example

This example uses made-up figures; it is not a rate any bank offers. Suppose an account is overdrawn by £400 for 30 days and the annual interest rate is 30%. A simple estimate of the interest is £400 x 0.30 x 30 / 365. First, £400 x 0.30 = £120 a year. Then £120 x 30 = £3,600, and £3,600 / 365 = £9.86 to the nearest penny. So about £9.86 of interest would build up over those 30 days. Real accounts may calculate daily, so a statement can differ slightly. If the same £400 were an unarranged overdraft, the rules mean the rate could be lower than 30% but not higher. Your own terms and summary box show the actual rate.

## Repeat use and what banks must do

Alongside the pricing rules, a separate chapter (CONC 5D) deals with repeat use, meaning a pattern of overdraft use whose frequency and depth may cause high cumulative charges or point to financial difficulty. Banks must monitor drawings and repayments and identify repeat users as early as possible. Guidance says a customer overdrawn in every month of the previous 12 months is likely to fall within the repeat-use categories. Where a customer shows signs of financial difficulty, the bank must contact them promptly, explore the reasons, set out options, and warn that the facility could be suspended, removed or reduced. It must not suspend, remove or reduce the overdraft where this would cause financial hardship. The FCA estimated that the repeat-use measures, in force from December 2019, would save consumers between £88 million and £105 million a year, and that the pricing rules saved over £500 million.

## Common mistakes and what to check

Several points are worth checking in your own account terms. A bank can reduce or withdraw an overdraft, and Citizens Advice notes it can demand repayment at any time, for example if a limit is repeatedly exceeded. Some accounts include an interest-free overdraft for a limited time, and this may end. A monthly account fee unconnected to overdraft use sits outside the overdraft pricing rules. The statement, the summary box and the key facts document from your bank should show the rate and any limit.

- Who this applies to: individuals with a UK personal current account that has an overdraft.
- Who it does not: business accounts. The repeat-use chapter also excludes credit unions, private banks and accounts the Handbook lists as excluded.
- Priority bills such as rent or mortgage, gas and electricity, council tax and court fines are normally dealt with before an overdraft, according to Citizens Advice.

## Where to get free help

If an overdraft feels unmanageable, Citizens Advice suggests working out a budget from recent statements and payslips, and then contacting the bank early. The bank may pause interest or fees for a time, offer a repayment plan or reduce the limit gradually, and it can be worth saying if you are vulnerable. Citizens Advice also describes the first right of appropriation, which is the right to use your income for bills and living costs, and a basic bank account, which has no overdraft. If you are unhappy with a bank's final response to a complaint, you can take it to the Financial Ombudsman Service within 6 months, and the service is free. Free, independent debt help is also available from MoneyHelper, StepChange and National Debtline. The Citizens Advice page covers England and was last reviewed on 10 January 2023.

## Check before you act

Rules, rates and account terms change, and each bank sets its own overdraft rate and limit. Confirm the details on the official pages linked below, and check your own account terms, before making any decision about your overdraft.

### Sources
- [FCA Handbook, CONC 5C (overdraft pricing)](https://www.handbook.fca.org.uk/handbook/CONC/5C/)
- [FCA Handbook, CONC 5D (overdraft repeat use)](https://www.handbook.fca.org.uk/handbook/CONC/5D/)
- [FCA, Millions of customers together save nearly £1 billion due to overdraft rule changes](https://www.fca.org.uk/news/press-releases/millions-customers-together-save-nearly-1billion-due-overdraft-rule-changes)
- [Citizens Advice, If you're struggling with your overdraft](https://www.citizensadvice.org.uk/debt-and-money/borrowing-money/types-of-borrowing/bank-overdrafts/)