# banking.overdraft-interest

The interest on a current account's overdraft for one statement period, from
its balance history. Each day the account is overdrawn, the amount overdrawn
beyond an interest-free buffer accrues interest at the overdraft's annual
rate; days in credit, and the part inside the buffer, cost nothing. It also
counts the days overdrawn and the days actually charged, which statements
show.

## How it is computed

The balance history is turned into a history of chargeable amounts,
max(0, overdrawn − buffer), and handed to lending.daily-interest: each amount
accrues for the days it held under the day-count convention, the pieces are
summed as exact fractions, and the total is rounded once with the mode you
pass. The period is `fromIso` included to `toIso` excluded, and the balance
list follows lending.daily-interest's rules (ascending dates, the first on or
before `fromIso`).

## The buffer

An interest-free buffer (for example "the first £250 of your arranged
overdraft is interest-free") is modelled the common way: only the amount
**above** the buffer is charged, every day. A balance exactly at the buffer
is not charged. Some accounts instead charge the whole overdrawn amount once
it passes a threshold; that is not this rule, and is modelled by passing a
zero buffer for the days above the threshold.

## Context

Since April 2020 UK banks price arranged and unarranged overdrafts with a
single simple annual interest rate and no fixed daily or monthly fees (FCA,
PS19/16 "High-cost credit review: overdrafts", June 2019,
https://www.fca.org.uk/publication/policy/ps19-16.pdf), which is exactly
what this computes. The rate, buffer, day count and rounding are the
account's terms, so they are arguments; ACT/365F and rounding the period's
interest to the nearest penny are the usual choices. Credit interest on the
same account is lending.daily-interest on the positive balances.

## What it does not do

- Tiered rates (a different rate above some amount): call once per tier with
  a buffer at the tier's floor and subtract.
- Charges other than interest, and monthly caps on charges (see
  banking.fees-cap).
- Rate changes within the period: split the period at the change.