How Fast Does Overdraft Interest Add Up?
An overdraft line of credit lets you draw funds up to a preset limit whenever you need cash, charging interest daily only on the amount you actually use. If you set up the limit but never draw on it, no interest accrues at all — but once you start using it, interest builds up every single day, so the longer you carry a balance, the heavier the burden.
Interest is calculated as "balance used × annual rate ÷ 365 × days used." For example, if you use $4,000 at a 6.5% annual rate for 30 days, the daily interest is about $0.71 and the 30-day accumulated interest comes to roughly $21. Even over a short period, a large balance can make the accumulated interest add up to a noticeable amount.
Overdraft lines are convenient for short-term cash needs, but their rates are often higher than a standard personal loan, so carrying a balance for a long time gets expensive fast. Use it only for short-term liquidity and repay as soon as you can — that's the surest way to minimize the interest cost.
Frequently Asked Questions
An overdraft line charges interest only on the amount you actually draw, calculated daily. The annual rate is divided by 365 and multiplied by the balance used and the number of days.
No, interest only accrues on the amount you actually withdraw and use. Simply having the credit limit set up does not trigger any interest charge.
Interest is recalculated on the remaining balance from the moment you repay. This calculator assumes a single balance, so after a partial repayment, recalculate using the new balance and remaining days.