What is the EAR overdraft rate? - Banking - Guides - Moneyfacts


What is the EAR overdraft rate?

What is  the EAR overdraft rate?

Category: Banking

Updated: 15/03/2016
First Published: 24/02/2011

EAR means the Equivalent Annual Rate, which is the interest rate you are charged if you go overdrawn on your current account.

How is the EAR worked out?

EAR is a representative interest rate that shows the rate you would pay if you remained overdrawn for a year. It is determined by:

  • The simple rate of interest you are charged if you go overdrawn,
  • The frequency with which interest is charged, and
  • The effect of compound interest on your debt.

So if you are charged 2.20% for every month you're overdrawn, it isn't as simple as 2.20% x 12 because of the effect of compound interest. Instead, the EAR would actually be 29.80%!

EAR doesn't include overdraft fees

Bear in mind that the equivalent annual rate doesn't take into account any overdraft fees, which, if you go over your agreed overdraft limit, are very likely to be charged.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

Related Articles

Bank accounts – key factors to consider

Bank accounts generally are designed to do the same job, but depending on how you'll run your account, you will be looking for different things in terms of what your account offers.

What is a Direct Debit?

How exactly does a direct debit work? A great way of paying regular bills, there’s also certain pitfalls to be aware of before setting up direct debits…

What is a standing order?

A standing order is a way of setting up a regular, fixed payment from your bank account. Read our practical guide to setting up a payment to be taken at a predetermined frequency and for a set amount.