EyeOnThe short answer
No. The part of an overdraft you use is borrowing from the bank. An available overdraft limit is not your own cash, and interest or fees may apply.
What it means
An arranged overdraft has an agreed limit and a stated cost, which may be a daily fee, a monthly charge or an annual rate. An unarranged overdraft occurs when you go over a limit or have none, and it is often more expensive.
The balance is repayable on demand in many places, which means the bank can ask for it back.
How it works
Costs vary. If an arranged overdraft of 300 were charged at 39.9% a year, a month of staying at the full amount would cost roughly 300 x 39.9% / 12, or about 10. If charged by a daily fee, the cost can rise quickly when used for long periods.
Overdraft use can show on credit reports in some countries and can influence how lenders view affordability.
A simple example
Someone who is 150 overdrawn for the last week of each month pays small amounts that add up over the year. A person who is consistently 150 overdrawn throughout pays more. Seeing the amounts on a statement and comparing with other options, such as a small loan or an interest-free period, shows the difference. Numbers are illustrations only.
Things worth checking
- Find out whether the overdraft is arranged, and what it costs per day or per month.
- Check whether using it affects your eligibility for other credit.
- Look for alerts that warn you before you go over.
- If the overdraft is always in use, it may be a sign to review the budget.
How it varies by country
Overdraft charges, caps and rules differ strongly between countries. In some places there are limits on fees; in others, none.