Want to be able to access extra cash when your pay cheque doesn’t quite last until the end of the fortnight,
or at other times when money is tight? You may be tempted to get an overdraft on your bank account. But
be careful – an overdraft is just another form of credit, attracting interest, fees and charges.
How do arranged overdrafts work?
An arranged overdraft is a credit facility that is connected to a bank, building society or credit account,
which you apply for or it may be given to you as part of the account. It is designed to cover short-term
needs only, such as having money in your account to cover bank fees.
You can arrange an overdraft on your personal bank account, your home loan account or business
An overdraft allows you to overdraw up to an agreed amount of money – an overdraft limit – that is
more than you actually have in your account.
You will be charged interest on the amount of money you use from your overdraft, and you may have to
pay fees and charges as well.
Overdrafts are usually repayable on demand. That is, if the credit provider demands repayment, you
must repay the entire amount requested immediately.
TIP What to check before you arrange an overdraft
Decide whether you really need to arrange an overdraft facility, or whether
there is a cheaper alternative.
Find out if there is an agreed time limit on your overdraft. You may have to
pay it back or renew it by a certain date.
Check the terms and conditions of the overdraft, especially if it is repayable
Think twice before you agree to an overdraft on your account to help someone
else, such as a family member or friend – you could find yourself owing more
money than you realise. You could even risk losing your home or other valuable
assets. (See our factsheet Love and loans at www.fido.gov.au/credit.)
What are unarranged overdrafts?
An accidental or unarranged overdraft occurs if you make a payment
but there are insufficient funds in your ban