Define debit interest

Written by jennifer vanbaren
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Define debit interest
Debit interest refers to fees charged on overdrawn bank accounts. (English bank notes image by Warren Millar from Fotolia.com)

In banking, transactions made to a depositor's bank account that decrease the balance of the account are called debits. Debit interest is interest charged on an account that is overdrawn.

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Debits

Any transaction that causes a bank account to decrease is a debit. Debits include cleared checks, debit card transactions and fees. Credits are any transactions that increase a depositor's account.

Overdrawn

When a bank account becomes overdrawn, a bank may charge the depositor debit interest. All financial institutions have different policies regarding debit interest. Some banks only charge a service fee for accounts overdrawn.

Calculation

If the rate of debit interest is 12 per cent and an account is £65 overdrawn, the debit interest charged for the account is three cents per day. It is calculated by dividing £65 times 12 per cent and dividing it by 365 days.

Offsetting

Many financial institutions offer account offsetting so customers can avoid paying debit interest. With offsetting, current accounts are offset by money the customer has in a savings account. With this, no debit interest is charged as long as the customer has enough money in their savings account to cover overdrafts.

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