Will overdraft be on cleared balance only?

Regarding the overdrafts that will be available at some point I have been trying to find an answer for this and cant find it.

currently with my RBS account the only transactions that will take me into an arranged overdraft is cleared transactions. As an example if i have an account balance of 100 and an overdraft of 100 then i have 200 available, if i then spent 200 on the card then i would only start accruing overdraft charges when the card payment is cleared.

What I am looking to find out is when will Monzo consider me to be in an arranged overdraft? will it be as soon as i authorise a payment to leave that dips into the overdraft? Or is it only cleared payments that will accrue overdraft charges.


Whilst Monzo shows which transactions are ‘pending’ the spend details page, your balance in the app includes them. I would assume that you are ‘in’ overdraft when your balance is at a minus figure, not when all payments are settled. It’s a slightly moot point, but I’d be interested to know for sure either way.

I ended up finding this out from one of the team at a CA preview event.

You will only start accruing overdraft charges based on settled, as opposed to authorised, transactions. That’s a legal requirement.

That represents a bit of a challenge for Monzo because your balance updates whenever a transaction is authorised so they’ll need to come up with a clever way to show you exactly when you entered your overdraft :thinking:


Ooof. And so the moot point becomes a legal obligation.

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i thought this might be the case. this is one of the advantages of seeing a cleared and available balance. but im sure monzo will come up with something inventive to let people know if they are in their overdraft :smile:

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You do enter your overdraft as soon as the authorisation takes you into a negative available balance, just you don’t pay anything until your actual balance (not shown by Monzo) becomes negative. This won’t always happen, because many authorisations get dropped.

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Whether that’s how Monzo defines this or not, the important point is when the user starts getting charged, right? Which is when the transaction settles.

Technically you might be right that the user could be ‘in their overdraft’ for a couple of days before they start being charged but I’m not aware of any reason why the point when the user enters their overdraft matters, from a practical standpoint?

Just from the perspective of the amount of money they have available - they will likely want to budget on the basis that they are using the overdraft, so the majority of the app should take this into account. Only the cost calculations should work on the basis of cleared funds.


I see what you mean. Yes I expect that the rest of the app will still be dependent on the user’s balance which will presumably turn negative, as soon as the transaction that takes it below 0 is authorised.

I can’t see a reason why the app’s behaviour would change depending on whether that negative balance was labelled as “in the overdraft” or not though.

There will be a “buffer” once the user’s in the red too but again, I don’t think this will have an effect of the rest of the app either.

I just think that telling the user that they’re “in their overdraft” while they’re not paying for it, would cause more confusion than it’s worth.

Instead, it just needs to be clear:

  • When the user’s entered the buffer.
  • When they’ve crossed the line & are about to be charged, once the transaction(s) settle.
  • When they are being charged.
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