What is a technical overdraft is and what are its consequences?
04/05/2023
Knowing exactly how much money we have in our account is crucial for the proper management of our liquidity and for dealing with future charges. And sometimes, a maladjustment of just a few days can cause us problems.
Therefore, the first thing to know is that for each movement in your account there can be two dates:
- the value date of the transaction, which, in the case of income and payments, refers to the day the money is available. In financial terms, it is the moment when the accounting entry begins or the accrual of interest ends.
- the transaction date or accounting date, which corresponds to the time when the entity records the entry in its accounts, even though the money, in the case of payments received, may not yet be available for use.
Generally, the gap between the two dates has no major consequences, since in the case of payments received, the amount available in the account is usually taken into consideration.
A valuation or technical overdraft occurs when we send charges to our account for an amount that exceeds the available funds. It is called “technical or valuation” because it refers to those momentary overdrafts, caused exclusively by banking mechanics that generate differences between the accounting date and the value date. Although they should not incur fees, the regulations don't prevent your bank from charging you interest for this reason.
An example of a technical overdraft would be the correction of a transaction that was ultimately not carried out. Imagine you are withdrawing money from an ATM, but in the end, you don't take it and cancel the operation. The bank will account for it until it notices the error: the value date must be the same as the day you carried out that transaction, even if the accounting date is later.
Keep in mind that, in practice, the overdrafts that we encounter most frequently tend to be derived from the product's own intrinsic operation and the entity would be entitled to charge interest and overdraft fees if this is contractually established. Let's look at an example:
- Juana is about to lodge a cheque from another bank at a branch of her bank in order to obtain funds. She needs the money from the cheque immediately in order to pay a supplier.
- This operation has a series of technical limitations, in particular, that Juana's entity has to verify if the issuer of the cheque has sufficient funds. Once verified, it will transfer the amount to her account. If she pays her supplier the same day as she lodges the cheque, this would lead to an overdraft because the funds are not available yet.
- In this case, we have to look at the valuation and accounting dates, which will be different. Which is the one that interests us for the purpose of the availability of funds? The date of the operation or moment at which payment occurs. The entity must expressly warn you that the lodgement will not be final until payment is verified.
Another example would be the case of international transfers, in which, even if the accounting date is the date when they are made, the funds will not be available until a few days later.
What dates does the legislation say? Apart from the internal valuation rules that each entity has and must publish, there are regulations that set maximum values for the time gaps that are admissible depending on the transaction carried out. The payment services regulations state that “the value date of the credit to the beneficiary's payment account will not be later than the business day on which the amount of the payment transaction was credited to the beneficiary's payment service supplier's account”. In other words, if you make a transfer from your bank to another one, the funds should reach the recipient by the end of the next business day, at the latest. Transfers made within the same entity are usually made on the same day. Remember that Saturdays and Sundays are not business days.
In short, to avoid surprises and unnecessary costs, it is important to pay attention not only to the date on which we carry out our banking transactions, but also to the value date.
To learn more about overdrafts in general and the associated fees, check out our best practice criteria.Abre en ventana nueva
