How is overdraft interest calculated?

Negative current account balance santander

This is why these reference rates are fundamental to the financial system, the banking system and the economy in general. What exactly is it that makes them so important, and why are they currently being reformed? Why are they being reformed?

A bank can grant a loan to a company at an interest rate that is agreed in relation to a certain reference rate plus 2%, which means that the company will have to pay interest of 2% plus the reference rate. Thus, if the reference rate increases, so does the cost of the loan and, conversely, if the reference rate decreases, the cost of the loan will also decrease. In this case, the index in question can be a reliable, independent and relatively simple benchmark for all parties.

Companies, banks and other entities also use reference rates to value items on their balance sheets, i.e. these indices make it easier for accountants to calculate the value of their entities (more specifically, of the financial assets they hold).

Negative current account balance

The easiest way is to open your bank account in a bank without overdraft fees such as ING or Evo Banco. If these do not convince you, you can always put an alert on your mobile if you are in overdraft or the balance of your account has dropped a lot and keep an eye on your personal finances through the app. In addition, it is also advisable to take a close look at banks without commissions.

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To calculate the overdraft fee you have to consult the bank’s fee book or the account contract. Remember that in this fee you have to include the interests of delay and the claim of debit positions.

Current account advance is an asset or a liability

A deposit current account is a banking contract whereby the holder may deposit funds into a bank account, or withdraw them in whole or in part without prior notice. In the case of a credit current account, it is the bank that grants the customer (borrower) the possibility of obtaining financing up to a pre-set amount (credit limit).

We will begin by examining the former, which, although it is true that it is more of a management instrument by virtue of which the bank undertakes to carry out, on behalf of its customer, as many transactions as are inherent to the “cash service”, it can become a source of financing (bank overdraft).

To value a transaction in a bank account is to assign it a date for the purpose of calculating interest. In this respect, a distinction must be made between the date on which the transaction takes place (transaction date) and the date considered for the calculation of interest (value date).

The same day of its payment, to which effect the paying office will stamp its seal with indication of the date of payment. If this requirement is missing, it will be debited with the value of the day of its debit to the account.

Current account overdraft limit

These are the amounts that a bank may charge for overdraft fees. In almost all banks, the amount to be charged is 4.50% (with a minimum of 15 euros) on the debit balance. Below, we show the percentage charged by banks and the minimum amount in cases where this is specified in their fee books:

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The average fee for claiming debit positions is €30. This fee is usually charged for the notices issued by the bank communicating the debt (mail, e-mail, calls) and based on the interest rate of the overdraft.

The banking entities usually establish that a balance in negative for a maximum time of up to 90 days is an overdraft. After this time, if we have not regularized the account, the bank will consider the client as a defaulter and the debt will become a doubtful collection credit.

In order to make an approximate calculation of how much we are going to have to pay in concept of commission for overdraft, it is necessary to know the percentage that the bank will apply to us and that appears indicated in the book of tariffs of the entity and in the contract of the account.

How is overdraft interest calculated?
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