Overdraft is an amount that you can withdraw from your bank account or card in credit.
Not all bank accounts allow overdrafts. It can be set like a limit at your account or card.
Technically, an overdraft is a paperless loan attached to your checking account (current account, debit card, etc.). If you have this overdraft limit, you can pay for expenses so that you don’t bounce checks, miss payments, or have your debit card denied.
Any money you use is a loan from your bank, so you’ll pay interest on the amount you borrow. However, the debt amount of overdraft is often less expensive than traditional overdraft protection programs – which usually charge around $35 for each rejected transaction that hits your account limits.
- Some banks allow you to overdraw your account to a certain dollar amount, and simply charge you fees for each transaction that they pay into the negative.
- An overdraft limit is one option for overdraft protection, but there are other choices. Remember that overdraft protection is optional – so you don’t need to add anything to your account – but your bank might still charge fees even if you’ve never opted-in.
- When you analyze balance in your account with overdraft, be careful – a lot of banks show amount in your account with overdraft limit like an available amount.