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.