Save on Your Overdraft Costs

Updated January 2018
TLDR ​Overdraft Fees Summary
  • ​Overdraft interest rates and fees are huge and being in overdraft $2,000 a year can cost you up to $500 in fees and charges. 
  • Bank overdraft charges differ massively - Kiwibank charges the lowest interest and fees (12.95%), BNZ charges the highest (23.70%) for arranged overdrafts. Look at switching banks to save money. 
  • Avoiding unarranged overdrafts will keep costs low, as will paying savings into an overdrawn account. Knowing your bank balance at all times is key. Managing your money and making a budget is essential. 
  • If you find yourself struggling to keep up, your bank is obligated to help you under the Credit Contracts and Consumer Finance Act - talk to them before making matter worsr. 
Overdraft fees - the bad and the ugly
​With overdraft interest rates as high as 27%(!), we have put together 12 ways to save $100s if not around $,1000 per year on your overdraft. The tips we offer help you to stress less and get in control of your bank account.

An overdraft is, in no uncertain terms, a debt. Like other debts, it needs to be managed and repaid. With most banks charging around 17-20% per annum in interest, in addition to a slew of fees on top, managing your overdraft will save you hundreds of dollars every year while avoiding the dread of seeing the alerts and charges.
 
Our 12 step guide covers how an overdraft happens, what you will be charged, how to get your bank account in good health and switching to a bank account that leaves you better off. With the right planning and best bank account, saving $2,500 - $5,000+ over 10 years isn't a stretch of the imagination. 

Explaining an overdraft - how it happens, and then what happens

  • Overdrafts are fairly common place in New Zealand, and most people find themselves with an overdraft of between $1,000 and $4,000.
  • Usually, the reason you go below $0 is due to “bad timing” - an automatic payment goes through when you already have a low balance, and to make sure it clears the bank lets you go into overdraft.
  • Once you’re in overdraft, you will be notified and a charge applied and the interest calculated from the day your balance is negative. The higher your overdraft, the higher the interest cost you will pay. 
  • Overdrafts step in to avoid the issue of automatic payments and direct debits being declined, as that triggers a “dishonour fee” which can be as much as $40 per payment.
  • Your bank will outline its overdraft policy clearly as to what it charges for using it – if it’s hard to find on their own website, just Google the bank’s name and “overdraft fees and interest”.
  • Remember, it’s not the bank’s fault if you don’t have enough money to cover a payment – making sure you have the funds is the aim of this guide.

Know the difference between “arranged” and “unarranged” overdrafts

There is a big difference between the two when it comes to the interest rate you’ll pay.
  • An “arranged” overdraft is a borrowing limit you’ve agreed with your bank – for example, it may be access up to $2,000 if your bank account goes below $0. To have this overdraft, you’ll pay a one-off application or setup fee (fee 1), as well as an ongoing monthly “overdraft facility” or “service” fee, which starts at $10/month even if you don’t go into overdraft (fee 2). Finally, you’ll be charged interest as soon as your bank balance falls below $0 (fee 3). If you wish to change your overdraft limit, you’ll pay any other application fee (fee 4) regardless of whether the bank approves it. 
  • An “unarranged” overdraft is when you exceed your overdraft limit, i.e. go above a $2,000 agreed limit, and when this happens you’ll pay a higher interest rate, known as the unarranged overdraft interest rate (fee 5). You may also be charged extra fees when you trigger an unarranged overdraft (fee 6), and together it makes expensive debt that can get out of control. 

Know your bank balance by having ready access to it

You’ll be far better off when it comes to managing your money if you have instant access to knowing your bank balance. Online banking has gone further with a number of mobile apps you can download to have instant access to your account summary. Beyond this, our banks have gone the distance to help customers and most offer text and email alerts triggered by:
  • Your balance going over or under a certain amount
  • The failure of an automatic payment or loan payment
 
Knowledge is power
  • Knowing what’s in your bank account lets you manage it and anticipate large transactions and shortages.
  • Sign up to the apps and alerts and be in the know – unforeseen overdraft is less likely when you have up to date information about your bank account, and that gives you all the power to act quick to make a change.  
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Use any savings you have to pay back an overdraft

With overdraft interest rates at 15%+ and after-tax cash deposit returns around 3%, you’re much better off using your savings to pay down an overdraft. Paying $2,000 into your bank account will save you about $300 in interest per year if you find yourself frequently overdrawn, and that’s before all the fee savings. If you need to reorganize your debts, look at balance transfer credit cards as a way of shuffling high interest debt to 0%. 
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Look at switching banks

Our banks charge different interest rates on overdrafts, with Kiwibank charging the least (16.90% pa) + $5 a month fee, and BNZ charging the most (23.70%) + $5 a month fee. The rate of interest you’ll be charged is clear for most banks, as we outline below:
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Overdraft Interest Rates and Fees in New Zealand

​
Kiwibank
ASB
BNZ
Westpac
ANZ
Preferential Overdraft
12.90%
15.50% (secured)
Not Offered
Not Offered
Not Offered
Authorised Overdraft
16.90%
19.50%
23.70%
13.95%*
13.95%#
Unauthorised Overdraft
22.00% p.a.
22.50% p.a
23.70%
26.95%
 28.95%
Application fee
$15
$25
$30
$25
 $25 
Overdraft limit increase fee
$15
$25
$30
$9
$25
Overdraft monthly fee
$5 per month
Scaled fee^
$5/month
Scaled fee**
 0.12% of overdraft limit
Monthly Over limit fee (unauthorised overdraft)
$10/month
Min. $10^^
$10/month
$9/month
$5
ASB
^ The greater of 0.12% of the overdraft limit and 0.12% of the highest daily overdrawn balance (minimum charge $2).
^^ $10 or 0.12% of the highest daily overdrawn balance 

​Westpac
* 13.95% + a customer margin (3%-6%)
** $5.00 per month (up to $5k, 0.10% of overdraft limit on overdrafts > $5k)

ANZ
# 13.95% + a customer margin (3%-6%)
​
Fee Summary
  • Kiwibank offers the lowest overdraft interest rate of 12.90% p.a. and the lowest application fee, but to get it you'll need to have your salary credited to your account and have good credit.
  • The ANZ charges the highest unarranged overdraft interest - 28.95% p.a.
  • BNZ customer and often in overdraft? It’s definitely worth considering switching to Kiwibank given the % rate can be HALF what BNZ currently offers.  ​
  • We have excluded the TSB, SBS and Heartland banks until their overdraft fees and interest rates are made clear on their respective websites.

Annual $ Cost of a $2,000 overdraft

$2000 
Overdaft
Kiwibank
ASB
BNZ
Westpac
ANZ
Interest Cost
$258
$390
$474
$399*
$399*
Fees
$60
$28.8
$60
$60
$28.8
Total
$318
$418.8
$534
$459
$427.8
Note, we have assumed a $2,000 overdraft balance for all 365 days in a year - we understand this does not reflect typical account usage. 
**In calculating the ANZ and ​Westpac interest rate, we have used a customer margin of 6%
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Talk to your bank

Every bank has a duty to treat its customers fairly under the Credit Contracts and Consumer Finance Act. If you have a big overdraft and switching bank is not an option, call or email your bank and ask them to look at waiving fees and/or reducing the interest you are paying. If you’re barely able to keep up with the payments and feel yourself sinking, you can make a financial hardship application – see our debt help guide. If your bank won’t help, look at free debt counselling from the Citizens Advice Bureau - full details can also be found on our debt help guide.

Manage Your Money when it gets paid

Whenever you get paid, don’t let your money sit there as you then risk spending it on things you don’t need. Instead, consider opening up a basic free bank account for day to day use, transfer a small amount for your needs, and repay your overdraft like it’s a loan or credit card. Prioritise paying your essentials (mortgage or rent, electrical etc) and then other high interest debt, such as credit cards and store cards.
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“If you don’t need or, don’t buy it” is a simple tip which always helps you to get back on your feet. Once you’ve repaid your most expensive debt, you can move on to the next one. Read our Debt Guide for more tips. 
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Don’t be an ostrich or think problems will go away

Debt is best controlled and repaid when you are aware of exactly what you owe and to who. If you don’t open your mail and delete emails from lenders without reading them, stop doing that. You want to be aware of your financial position at all times, even if it’s not looking that great and raises anxiety levels. Awareness is the only way to improve your situation. Banks love to charge fees and penalties, so fight back by being in control of what’s going on. If you are really struggling, see our debt help guide.
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Consider getting a “no-overdraft” account to avoid paying monthly overdraft-related fees

A basic bank account is a no-frills, no-overdraft current account that is low in fees and benefits. You will still need to be approved and credit checked, but if you’ve got no need for an overdraft it’s probably best to switch to a more suitable product. Talk to your bank about their overdraft-free accounts.

Overdrafts are really expensive, and always have been

The average arranged overdraft interest rate is 20% p.a. and you’re paying monthly fees on top, making the repayments as expensive as credit card debt. The interest is calculated daily, and applied to your balance meaning you can get trapped in a debt spiral. We believe overdraft high interest rates and fees are here to stay for the long term.
​
Banks can make $1000/year in fees and interest off anyone who finds themselves in a ~$4,000 overdraft more times than not. Paying the interest while trying to get back in the black can be tricky if your finances are not managed properly. 
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Talk to companies you have contracts with to change the dates of the direct debits

If you know you’ll be in overdraft before payday, you might as well minimize the time you'll be in the red. If you get paid on the 30th of every month for example, move your direct debits to say the 28th or 29th so that you are in overdraft for as little time as possible. This only works if you budget and don’t spend the money on other things.
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Make a Budget and Get in Control

A budget is essential to managing your overdraft – moving your direct debit dates won’t solve your overdraft. If you take the time and put together a budget, you can identify areas to cut back on and change your spending habits so you can avoid relying on your overdraft. The money you will save from being in the black will be significant.