Overdraft facilities

Having a current, or cheque, account does not always mean that you have the money you need to pay for your expenses.

When you do not, but you have written a cheque or needed to make a payment, you may fall into an overdraft facility.

What is an Overdraft Facility
An overdraft facility is technically when you withdraw more than you have and the result is a negative balance that you need to pay back. However, the facility itself is considered its own short term, low credit loan that you have permanently available in your checking account.

Or, to rephrase, when you have a checking account, there is usually some amount listed as an "overdraft" amount - a preset amount of money (that goes up if you have good credit) that, if you spend more than you have, will not cause your cheques to bounce or get denied.

Benefits of Overdraft Facilities
The main benefit of an overdraft facility is the ability to have your payment go through even when you do not have the money. When paying rent on a flat, for example, if you are 6 pounds short in your bank account you do not want your entire cheque to bounce or you may need to make a substantial payment in fees and possibly get evicted. The overdraft allowance allows you to make that payment anyway, and then simply pay back the bank if you need to.

Though overdrafts are an incredibly helpful thing to have available, you do not want to overdraft if you can help it. Many cheque accounts have fees that you incur with every overdraft. So if the fee is 10 pounds when you overdraft, if you use a cheque card or a cheque 10 times before you realize that you have overdrafted, you may be charged 10 different times resulting in a 100 pound penalty in addition to the amount you already owe and any interest if the bank charges it.

Many banks also make you apply for an overdraft fee, so it is possible to get denied.

 Overall, the overdraft facility is a helpful feature for bank accounts as it helps to make sure you can make all the payments you need to make and that you do not get denied just because you forgot to transfer money into your cheque account. However, if you can help it, never use it willingly or you will be paying much more than you would if you used your credit card or a loan instead.

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