Compare bank accounts with an overdraft

Think of an overdraft as extra money you can draw on in times of need. An overdraft works by allowing you to withdraw more money than what’s available in your bank account. 

There are different types of overdrafts available – but in this instance, we’re referring only to overdrafts associated with personal (not business) transaction accounts. 

An overdraft is essentially an unsecured line of credit. It’s similar to a credit card in that the credit amount is limited (or capped) and a variable interest rate is applied to the credit used. 

However, overdrafts are a popular alternative to credit cards because they are attached to your day-to-day transaction account and don’t require additional PINs, cards or separate statements. 

You might have experienced at one time a sinking feeling at seeing your bank balance in arrears. An overdraft can give you peace of mind (and take care of cashflow issues) by being on standby. 

Most major banks and financial institutions offer personal overdrafts via a simple application process. You will need an existing transaction account beforehand. 

The application process for an overdraft is simpler than applying for a credit card. You can apply online through your existing financial institution, or shop around for an overdraft that appeals. 

As with any credit product, there are credit assessment criteria that you may need to meet. However, it’s not as strict as the criteria applicable to larger loans such as mortgages.

In general, the eligibility criteria for overdrafts could require that you:

• Are at least 18 years old
• Have a regular income
• Are an Australian citizen, permanent resident or have a valid visa 

When applying, ensure you have some form of identification on hand, your tax file number, your bank account information, and any income, employment and financial commitment details. 

The limit for an overdraft can be as low as a few hundred dollars and can go as high as $50,000 or more. Overdrafts limits can be capped or based on an agreed value.

Your overdraft limit will depend on how much you want, your affordability, and/or your income. Different overdraft products will also have different variable interest rates, and fees and charges. 

It’s important to ensure your negative balance doesn’t exceed the agreed terms (or your overdraft limit). Additional fees may be charged and higher interest rates may apply if this occurs. 

• No set repayments 
• Only pay interest on the credit used 
• No or low monthly service fee 
• Competitive interest rate 
• Easy access to extra funds 
• Linked to your transaction account 

In addition to the benefits listed, the real value of an overdraft is that it’s attached to your transaction account. That means you can access credit the same way you would withdraw money. 

You could make withdrawals using your overdraft in all the usual ways, including at an ATM; in a branch; BPAY; online, mobile or phone banking; and via EFTPOS.