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 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. 

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, banks have gone the distance to help customers. 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 quickly to make a change.  

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 reorganise your debts, look at balance transfer credit cards as a way of shuffling high-interest debt to 0%. 
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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 does not help, look at free debt counselling from the Citizens Advice Bureau - full details can also be found on our debt help guide.

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. 

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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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.  ​

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.

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 high-interest overdrafts and their endless fees are, sadly, here to stay for the long term.
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Banks can make around $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. ​