Overdraft interest rates kick in when you charge more payments to your bank account than the money in your account can cover. This is interest you pay to the bank on the loan you receive when you overdraw your account. These rates are set so high that overdrawing your account is not financially beneficial under any circumstances.
Overdrafts: Beware the penalties
Unlike general interest rates and interest on deposits, overdraft interest rates rarely change. The high risk of default and administrational costs involved are the main reasons why banks charge very high overdraft interest rates.
Overdraft rates are often not clearly stated
More often than not, overdraft interest rates are not clearly shown on bank websites. Although banks are required to inform account holders about the presence of overdraft interest charges, they are not obliged to disclose the exact rates. Make sure to ask a bank representative for the applicable overdraft rate.
Overdraft interest: It pays to compare
Different banks impose different overdraft rates. According to the Migros Bank, overdrawing your account at their bank is technically impossible. Here is an overview of the overdraft interest rates charged by a number of major Swiss banks:
Bank Linth: 9.5%
Graubündner Kantonalbank (GKB): 9.75%
Zürcher Kantonalbank (ZKB): 9.75%
Bank Coop: 11.5%
Basler Kantonalbank: 12%
St.Galler Kantonalbank (SGKB): 12%
Credit Suisse: 12.5%
Even the lowest overdraft interest rates are still very high, so overdrawing your account is definitely not recommended. With current low annual yield rates, it may take years for the yields you earn to make up for the interest charged on your overdraft.