Overdraft Calculator
Overdraft Calculator
An overdraft occurs when you withdraw more money than is available in your bank account, leading to a negative balance. Banks allow overdrafts up to a limit, but they charge daily interest on the borrowed amount. This calculator helps determine the total interest and amount owed based on the overdraft balance, interest rate, and duration.
How to Use the Calculator
Enter the following details:
Overdraft Limit
– The maximum amount your bank allows you to overdraft.
Overdraft Balance
– The current amount you have overdrawn.
Daily Overdraft Interest Rate
– The percentage interest your bank charges per day on the overdraft amount.
Number of Days Overdrafted
– The number of days your account has remained in overdraft.
Formula
Calculate Daily Interest Charged
Daily Interest Charged = Overdraft Balance * (Daily Overdraft Interest Rate / 100)
Calculate Total Interest Charged Over the Period
Total Interest Charged = Daily Interest Charged * Number of Days Overdrafted
Calculate Total Amount Owed
Total Amount Owed = Overdraft Balance + Total Interest Charged
Example Calculation
Let’s say John has an overdraft balance of $500, with a daily overdraft interest rate of 0.05%, and he has been overdrafted for 20 days.
Step 1: Calculate Daily Interest Charged
Daily Interest = 500 * (0.05 / 100) Daily Interest = 500 * 0.0005 Daily Interest = $0.25 per day
Step 2: Calculate Total Interest Charged
Total Interest = 0.25 * 20 Total Interest = $5.00
Step 3: Calculate Total Amount Owed
Total Amount Owed = 500 + 5 Total Amount Owed = $505
Frequently Asked Questions (FAQs)
What is an overdraft?
An overdraft happens when you withdraw more money than your available balance, causing a negative account balance.
How do banks charge interest on overdrafts?
Banks charge daily interest on the overdrafted amount. The longer you stay in overdraft, the more interest you will owe.
How can I reduce overdraft charges?
Pay off the overdraft quickly to minimize interest.
Negotiate a lower interest rate with your bank.
Use an overdraft with lower fees, if available.
Can I avoid overdraft fees?
Yes! You can avoid overdraft fees by enabling overdraft protection, setting up low-balance alerts, or keeping a financial cushion in your account.