What is an Overdraft Interest Charge?

An overdraft interest charge is the interest you pay when your account stays in the negative after using overdraft protection or an overdraft line of credit.

Instead of just a one-time overdraft fee, you’re also charged ongoing interest on the amount you’re “borrowed” from the bank until you bring your balance back above zero.

A Simpler Way to Avoid Overdraft Fees: KOHO Essential

If you’d rather not worry about your account going negative and racking up overdraft interest, with KOHO Essential:

• It has a low monthly plan fee that can be waived when you set up direct deposit or add +$1,000.

• Use a prepaid Mastercard® for groceries, bills, subscriptions, and travel.

• Grow your savings with a 2% interest savings rate on your entire balance.

• Earn 1% cash back on groceries, eating & drinking, and transportation.

• You can subscribe to Credit Building for $10/month, it's an affordable way to build your credit history.

• Enjoy unlimited transactions and free e-transfers (never worry about fees when sending money to someone again).

How Overdraft Interest Charges Work

When your bank lets a transaction go through even though you don’t have enough funds, you effectively borrow that shortfall.

You can be charged in two ways:

• A flat overdraft fee (for using overdraft).

• Interest on the negative amount, calculated using an annual interest rate (similar to a line of credit), added daily until your account is back in the positive.

So if you sit in overdraft for days or weeks, you’re not just paying the initial fee—you’re also paying ongoing interest on top.