Ask five people what their bank charges for dipping into the red and you'll get five shrugs. Most current account holders in the UK still think of overdrafts as "about £3 a month, maybe more" — a hangover from the flat daily-fee era the Financial Conduct Authority scrapped back in April 2020. Five years on, and now with the FCA's Consumer Duty sitting on top of that reform, the pricing model has changed twice over. Whether it actually got cheaper for you is a different question, and the honest answer is: for a lot of customers, barely.
The 2020 Reform Everyone Half-Remembers
Before April 2020, overdraft pricing was a mess by design. Banks stacked a fixed daily fee — sometimes £1, sometimes £5 or more — on top of interest, so two customers borrowing an identical £200 could pay wildly different amounts depending on which product they'd been sold years earlier. Some accounts charged nothing for the first £10 of an accidental dip and then hit you with a flat monthly fee the moment you crossed it, which meant the true cost of borrowing was buried in small print rather than in any single headline number. The FCA's high-cost credit review found that, once you converted those daily and monthly charges into an annual percentage rate, some arranged overdrafts worked out more expensive than a payday loan. That comparison embarrassed enough people in Canary Wharf that the regulator banned fixed daily and monthly overdraft fees outright, forcing every bank to quote a single interest rate instead, expressed as an APR you could actually compare across providers. Banks had roughly eighteen months' notice before the rule took effect, and most used the window to quietly raise their new single rate close to what the old fee-plus-interest combination had cost their heaviest overdraft users, rather than to what it had cost the average one.
It should have made overdrafts boringly comparable, like a mortgage rate or a savings bond. It mostly did — you can now genuinely stack Barclays against Monzo on one number — but it also gave banks a legal, disclosed reason to converge on rates near the regulatory ceiling of what a "reasonable" APR looks like. Most mainstream current accounts settled somewhere between 35% and 40% EAR for an arranged overdraft, and that range has barely moved since. NatWest, HSBC and TSB have all published rate cards in that band; Barclays has sat close to the bottom of it; Monzo and Starling both use a version of the same model, tiering the rate by an internal credit assessment rather than offering one flat number to everyone.
Consumer Duty Adds a "Fair Value" Test
The 2020 reform fixed disclosure. It didn't touch the level of the charge itself, and that's the gap Consumer Duty was built to close. Since it came into force on 31 July 2023 for open products (and a year later for closed ones), every regulated firm has had to show — not just claim — that the price a customer pays represents fair value against the benefit received, and that includes overdrafts sitting on an otherwise free current account. In principle, a bank can no longer point to its published APR and call the job done. It has to be able to defend, product by product and customer segment by customer segment, why 39.9% is fair for a customer who dips in for three days a month rather than for one who's overdrawn most of the year. Firms now have to keep records of that assessment and be ready to hand them to the FCA on request, which is a meaningfully higher bar than the old "disclose it clearly and let the market decide" approach ever was. It's also the first time overdraft pricing has been treated as a supervisory question rather than purely a transparency one.
In practice, that assessment happens inside each firm, against its own book of customers, not against a market-wide benchmark set by the regulator. A bank can pass its own fair value test while still charging near the top of the range everyone else charges too — Consumer Duty asks "is this defensible for our customers," not "is this the cheapest overdraft in Britain." That's the part most coverage of the reform glossed over when it landed, and it's the reason the headline rates haven't really moved even though the compliance paperwork behind them has grown considerably heavier.
What the Rate Cards Actually Say Now
Run the numbers on something ordinary. Someone £500 overdrawn for fifteen days at a 39.9% EAR pays around £8 in interest for that stretch — genuinely easy to ignore, which is exactly why so few people ever check the figure. Stretch the same £500 balance across a full year instead of clearing it, and the interest alone runs past £190, more than a third of the original amount borrowed. That's the gap Consumer Duty was meant to interrogate: an overdraft is a reasonable tool for a short, occasional dip and a genuinely expensive way to carry ongoing debt.
The tiered models at Monzo and Starling complicate a straight bank-by-bank comparison. Both run an internal credit assessment and place customers into rate bands rather than quoting one number for everyone, which means a customer with a strong Monzo relationship might land at 19% while a thinner file gets pushed toward 39%. Barclays and NatWest use fewer tiers and lean closer to a flat rate for most current account holders. None of this is published as a single comparable table anywhere — you only find out your actual rate once the app or the letter tells you, which is itself worth flagging as a fair value question the regulator hasn't fully answered.
Comparison sites don't help much here either. Most only list the arranged APR because that's the one field every bank is required to disclose in the same format, so a search for "cheapest overdraft UK" will happily rank an account with a brutal unarranged tier above one that simply doesn't have one. Worth checking the actual terms and conditions PDF rather than the comparison table summary — tedious, but it's the only place the unarranged treatment is spelled out in full.
The Buffer Features Doing More Work Than the Headline Rate
What.
That one-word paragraph is a fair summary of most customers' reaction to finding out their bank charges an unarranged overdraft fee identical to the arranged one, or worse. Starling doesn't. If a payment takes you fractionally over your arranged limit, Starling charges the same interest rate as if you'd planned the borrowing, rather than layering an extra unauthorised-lending penalty on top — a policy it's been fairly loud about since well before Consumer Duty made "fair value" a legal requirement rather than a marketing line. Monzo pushes real-time notifications the moment a transaction takes a balance into the red, which sounds like a small thing until you've actually had a card declined at a self-checkout because a Direct Debit cleared an hour earlier than expected.
Here's where the nuance actually bites, though: none of that buffer generosity shows up in the headline APR comparison. A current account with a slightly higher published rate but genuinely no unarranged-overdraft penalty can end up cheaper over a real year of use than one with a lower headline rate and a punishing unauthorised tier — and almost nobody compares products on that basis, because the APR is the only number the FCA makes banks put in bold.
Where an Overdraft Still Earns Its Keep — and Where It Doesn't
Use an arranged overdraft for what it's actually built for: a wage that lands three days later than a Direct Debit, a deposit that clears on a Tuesday instead of a Friday, the odd month where a car repair eats the buffer you'd normally keep in savings. For that kind of short, self-correcting dip, even a 39.9% headline rate barely registers in pounds and pence, and switching accounts purely to shave a few percentage points off it isn't worth the admin.
Carrying a balance for months at a time is a different problem entirely, and pretending an overdraft is the right tool for it is where people lose real money. If you're overdrawn most of the month, every month, a 0% money transfer card or a credit union loan will almost always undercut a 35–40% EAR overdraft on cost, and moving the debt there — even with the admin of a new application — is the better call. Don't roll a chronic overdraft over indefinitely just because your bank never asks you to; nobody at NatWest or Barclays is going to volunteer that a credit union in your area lends at a fraction of the rate. Consumer Duty puts the burden of proving fair value on the bank, not the other way round, so if your overdraft has quietly become permanent debt, that's the conversation worth forcing with them directly, in writing, referencing the Duty by name.
The honest verdict on five years of reform is a mixed one: the fixed-fee racket is genuinely gone, the APR comparison genuinely works, and the buffer features at the newer banks genuinely save people money on the unauthorised side. What hasn't moved is the headline number itself, still clustered stubbornly in the high thirties across most of the market, which tells you Consumer Duty raised the bar for justifying a price rather than the bar for lowering one.