The overdraft is the one loan product most people already have and have never priced. It sits attached to the current account, costs nothing while the balance is positive, and the bank markets it as cheque bounce protection. At the trading company where I work, the finance team runs the same instrument at a much larger scale, and the number they watch is not the rate. It is how many days of the month the account spends below zero.
How a UAE overdraft charges interest: per day, on the overdrawn balance, swept by the next salary
The Central Bank defines overdrafts in Article 4 of Regulation 29/2011 as facilities “linked to customers accounts, and are provided by banks for payment on their behalf, in advance”, which “usually results in a negative balance in the customers’ accounts”. The same article says the facility must be pre-arranged: the customer applies, states the purpose and the expected repayment period, and the bank approves a limit. Going past that limit is a different, more expensive thing, covered below.
Once the limit exists, the mechanics are simpler than a loan. Emirates NBD’s Key Facts Statement, dated September 2025, states that “interest payment is calculated based on end of the day outstanding balance and charged monthly to your account”, and that “no interest is charged when the overdraft outstanding balance is nil”. HSBC’s version says the same in different words: “we apply the interest rate to your utilized balance daily”, on a 365-day year. There is no instalment. Any credit into the account repays it, and HSBC’s terms make that explicit: the customer authorises the bank to apply “any salary payment or other payment credited to your salary account” towards settling the overdraft.
So the salary sweeps the overdraft to zero on the first of the month, spending pushes the account back below zero on the 18th or the 22nd, and the interest meter runs only for the days in between. The cost of the facility is the rate multiplied by the days, and the days are the variable a household actually controls.
The worked example: AED 49.32 for ten days, AED 210 for the privilege
Emirates NBD’s representative example is the cleanest illustration I have seen a bank publish. Utilised amount AED 10,000. Interest 18% a year, which the sheet also writes as 1.5% a month. Utilised period ten days. Total interest AED 49.32, calculated as 10,000 multiplied by 18% divided by 365, multiplied by ten days.
That is AED 4.93 a day. The daily figure is what makes the arithmetic useful:
- Ten days below zero: AED 49.32.
- Twenty days, which is a household whose spending outruns the salary two-thirds of the way through the month: AED 98.63, roughly AED 1,184 a year.
- The full month, every month, which means the salary never clears the balance: AED 147.95, or AED 1,800 a year at the full AED 10,000.
Then add the fixed cost. The same sheet lists an “Overdraft Processing Fee / Renewal Fee” of AED 210 inclusive of VAT, non-refundable, and states that a salary-linked overdraft “is valid for 12 months”. So the line costs AED 210 a year whether or not it is used, and at AED 4.93 a day the fee alone equals about 43 days of AED 10,000 overdrawn. For anyone who dips in for a week once or twice a year, the fee is the whole cost and the interest is a rounding error.
An overdraft used for a week costs less than a dinner. An overdraft that never returns to zero is an 18% loan with no end date.
The rate itself is not fixed at 18%. Emirates NBD lists it as “starting from 4.75% up to 18% per annum”, depending on segment and credit profile, and the limit as “up to 2 multiples of salary or 90% of your fixed deposit”. HSBC prices its unsecured overdraft “starting from 17.00%” within the approved limit, with no arrangement fee and renewal “every year at no cost”, but requires “a minimum income of AED 7,500 which gets transferred to HSBC”. Its own example is AED 25,000 utilised against a AED 30,000 limit at 17%, which comes to AED 349 for a 30-day month. That matches the daily formula to the dirham: 25,000 multiplied by 17%, divided by 365, multiplied by 30.
What the over-limit rate and the interest-free buffer change
Two lines on the HSBC sheet do most of the work in either direction. The first is the buffer: an “interest free portion of the overdraft limit” of AED 5,000 for Premier, AED 2,000 for Advance and AED 500 for Personal Banking. A Personal Banking customer who dips AED 400 below zero for a fortnight pays nothing. The buffer is the part of the product that behaves like the cheque-protection cushion banks advertise.
The second is the penalty tier. Within the approved limit the APR starts at 17%. Beyond it, the balance becomes what HSBC calls “un-authorized / over-limit”, priced at 22% on a dirham balance. On the same AED 25,000 for 30 days that is AED 452 instead of AED 349, and the sheet calls it “penalty interest”. Going over the line is therefore not a slightly bigger overdraft. It is a different price list.
The Central Bank sets the outer fence. Its clarifications manual for Regulation 29/2011 states that “overdrafts limits will be counted within 20 times salary as specified for the personal loans”, so an overdraft eats into the same borrowing ceiling as a personal loan, and Article 7 of the regulation folds “overdraft facilities” into the 50% of gross salary that all deductions together may not exceed. A AED 20,000 overdraft limit is not free capacity. It is AED 20,000 of loan room a bank will not lend twice.
The three clauses that price the risk, not the interest
The interest is the visible cost. Three sentences in the Key Facts Statements are the invisible one, and they are why the finance team where I work treats the company line as a facility to be respected rather than a balance to be lived in.
The first is repayment on demand. Emirates NBD’s warning box says the facility “may be withdrawn by the bank at any time” and that everything outstanding is repayable “upon demand”. A personal loan has a schedule. An overdraft has a phone call.
The second is set-off. The same box states that other accounts held with the bank may be used to set off against amounts owed under the overdraft. A savings pot at the same bank is, in the bank’s eyes, collateral for the overdrawn current account.
The third is the credit file. The same sheet states plainly that “if your account continues to remain in overdrawn status due to insufficient credits to the account, your credit score will be affected”, and that this “may also limit your ability to access loan/financing in the future”. HSBC lists “2 returned cheques due to insufficient funds in the last 6 months” as a reason to refuse the facility at all. A permanently negative current account is a permanent entry, not a private arrangement.
Reading the overdraft in a monthly budget
In my own tracking the overdraft never appears as income, because it is not. The current account is allowed to show a negative number, that number is a debt, and the only expense the overdraft generates is the monthly interest line the bank posts, plus the AED 210 renewal once a year. The discipline borrowed from the office is to count the days. Fewer than 43 days a year below zero, and the renewal fee is the real cost of the product. Most of every month below zero, and the salary is no longer clearing the balance, so what is being financed at 18% a year is last month’s spending. Run the numbers against the actual days, not the headline rate.