Personal overdraft, or the mount of money that the bank will spend to honor checks and debit card charges over a customer's balance, is a service offered by banks to checking account customers. If a customer writes checks or makes charges to her checking account debit card that exceed the funds available, the bank may honor those charges or check according to the customer's personal overdraft. The customer may be subject to additional fees for using this service, though some banks offer customers the option of using other funds, such as from a savings, line of credit, or credit card account to fund their overdraft, thus avoiding extra costs. There can be significant differences in the overdraft services between countries.
In the United States, many banks offer the courtesy of a personal overdraft to their account holders in order to prevent the embarrassment and possible legal trouble that can result when a check is returned for insufficient funds. Some banks automatically offer personal overdraft services to all customers who have had an account for a certain period of time. The amount of the personal overdraft varies according to bank policy, though some banks base the amount of overdraft on the account's average balance as well as the banking behavior of the customer. When a customer does write a check that is not covered by the funds in the account, the bank is at liberty to honor or not honor the check and then charge an overdraft fee to the bank customer's account.
While this service is appreciated by many bank customers, these overdraft fees can add up and cause significant financial hardship. Some banks now have policies that allow customers to request the waiver of fees under certain conditions or as a general but occasional courtesy. In order to prevent the charging of fees, some banks allow customers to participate in overdraft protection programs, which use funds from other accounts or lines of credit to cover overdrafts at minimal or no charge.
In the United Kingdom, a personal overdraft is often included in checking accounts, and if the balance is not exceeded, customers pay minimal or no fees for using it. Unlike personal overdraft in the United States, the United Kingdom treats overdraft more as a line of credit than a courtesy offered by a bank. If a bank customer does exceed his personal overdraft amount, banks in the United Kingdom may choose not to honor the customer's checks and charges and may charge significant fees to cover the costs of processing the additional overdraft.