Overdrafts
OVERDRAFTS – A FINANCIAL TOOL, WHICH DESERVES TO BE WISELY
DEPLOYED
Overdrafts technically refer to a situation wherein, withdrawals from the bank
account exceed the bank balance. Practically however, there is much more to this
simple balance – withdrawal mismatch. Overdrafts are a financial tool, which
many wise businessmen and individuals have deployed on several occasions, to
earn benefits in the long run and prevent debt problems. Overdrafts in fact have
immensely helped at several crucial instances like debt management and
consolidation. The stated might seem absurd to many, who are often busy ensuring
that there are no overdrafts to deal with. Therefore to clarify on the remarked
and present substantial grounds to validate the sensible usage of overdrafts, an
overview of this instrument or strategy is presented below.
UK related legality clauses of overdrafts facility
Before elaborating on the various possible modes in which overdrafts can be of
assistance, it is pertinent to understand the overdraft protection feature in
the United Kingdom.
In UK, banks have an authorized overdrafts facility for credible accounts,
wherein based on the balance maintained in the bank account, authorized
overdrafts can be drawn, without any corresponding interest charges. Exceeding
the authorized limit however, might call for respective fee factors. The legal
age for applying for an overdrafts facility is 18. It is a mutually agreeable
concept, between the bank and the account holder. As per the Office of fair
Trading, overspending of credit card limits, in more than one ways, is
synonymous to unauthorized overdrafts facility and therefore calls for interest
/ fee.
How can overdrafts help?
• Short term coverage – The foremost advantage of using an overdrafts facility
relates to the short term cover it extends. Business requirements or any other
personal, temporary cash mismatches can be effectively dealt with overdrafts.
With no additional cost to bear, overdrafts serve as an immediate solution, to
many difficult debt problems.
• Salary before the payday – It is not always possible to postpone all important
financial needs till the payday. Neither is it always feasible to save for every
unexpected requirement. With overdrafts at easy access, earning the salary
before the payday is probable.
• Scope for errors – With overdrafts to offer cushion, there is a scope to be
slightly relaxed. Minor mistakes in accounts or small term organizational
inabilities can be covered by seeking overdrafts.
• Unexpected withdrawals – It is possible that you permitted withdrawal months
ago, but the recipient used the access now. This debit situation and thus the
debt problems, which bang on, without a preceding warning system, is
successfully countered by overdrafts facility.
• Check issuing facility – With overdrafts to cover up in short term, the
account holder has the liberty to issue checks or make debit, when funds are
shortly expected.
In addition to the stated, there are instances when inadvertently overdrafts are
used to avoid various eventualities, like in case of bank error. Other instances
to this list include account robbery, within a day balance mismatch, ATM related
frauds, etc.
In a nutshell, overdrafts are flexible short term borrowings, which can be
effectively organized to manage the overall cash position.
Articles on
Overdrafts:
Student Bank Overdrafts
Charges on Debit Card Overdrafts
How Bank Overdrafts are Handled in the UK