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What is a Current Accounts Overdraft?
Jessica Ellis
Jessica Ellis
A current account is a form of bank account found in the United Kingdom that is meant for day-to-day transactions. Similar to checking accounts in the United States, current accounts usually include the use of checks, debit cards, and deposit and withdrawal systems for easy access to money reserves. A current accounts overdraft occurs when a person withdraws or spends funds in excess of the balance of the account. The ability to make a current account overdraft may be built into the structure of the account, or may result in high fees. If the occasional overdraft seems a likely possibility, account holders may want to look for a bank that offers no-fee current accounts overdraft services.
A current accounts overdraft can happen for many simple reasons. People with automatic bill pay settings may find themselves in overdraft if monthly bills are paid before a payroll deposit is made to the account. Forgetting about a single check or charge can easily lead to a belief that more funds are available for use in an account. Even a bank fee for an unrelated issue, such as an ATM fee or late payment charge, can create a current accounts overdraft.
Some United Kingdom banks make it a policy to offer no-fee overdraft protection up to a certain level. In effect, this service extends a small line of credit to the account holder that can be used and repaid at will. Accounts with this type of protection do not usually charge a fee for making an overdraft payment, and allow repayment at the account holder's leisure. This service may be reserved for long-term customers or those with a high value balance.
In the United States, no-fee overdraft protection on checking accounts is much rarer. While banks may agree to cover an overdraft charge up to a certain amount, it typically carries the penalty of a very high fee. Even worse, if the bank balance has not been replenished before the overdraft fee is assessed by the bank, it can trigger an additional overdraft charge, leading to a spiral of increasing charges. One possible solution to checking account overdrafts is to link a checking account with a savings account, so that overdrafts will pull funds from the savings account without triggering an overdraft fee.
Even with banks that offer current accounts overdraft credit, it may still be wise to exercise this option with caution. In a true emergency, a person who has already reached the limit of the overdraft credit may be out of luck. Saving this protection for emergencies only can help reduce overspending and keep a buffer of funds in reserve.
Jessica Ellis
With a B.A. in theater from UCLA and a graduate degree in screenwriting from the American Film Institute, Jessica is passionate about drama and film. She has many other interests, and enjoys learning and writing about a wide range of topics in her role as a WiseGEEK writer.
Learn more...
Jessica Ellis
With a B.A. in theater from UCLA and a graduate degree in screenwriting from the American Film Institute, Jessica is passionate about drama and film. She has many other interests, and enjoys learning and writing about a wide range of topics in her role as a WiseGEEK writer.
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Discussion Comments
One thing that both American and British banks have in common is that they have special offers for overdrafts for only good customers. Customers with a large account balance or with large monthly deposits will usually get the fee free overdraft options.
@literally45-- Well UK isn't exactly better off because every bank doesn't have fee free overdraft policies and the ones that do have it for a certain number of days or up to a certain amount. So if someone has signed up for a current account without learning about their overdraft policies first, they might very well face fees when their account goes into overdraft.
Whether in the US or the UK, it's important for customers to select a bank and a current account after asking about their overdraft policies.
Ah so UK bank accounts allow overdraft as well. But UK banks sound better than American banks, at least the ones that offer overdraft protection without fees. It's quite ridiculous in the US. If an overdraft has occurred, American banks usually charge a fee for every single day that an account remains in overdraft. So the fees accumulate rather quickly.
I once experienced an accidental overdraft. Just as the article mentioned, I thought that my paycheck had deposited and made a small purchase. My account went into overdraft for merely a few dollars. My paycheck did not clear until three days later. And during that time frame, the bank charged me a $15 dollar fee for each day. So for two dollars, I ended up paying $45 due to overdraft. I can never forget it.
This was a time when online banking wasn't available yet. So I couldn't check my account balance so often. Now, I never buy something without checking my balance and making sure that my deposits have cleared.
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