A bank overdraft occurs when someone withdraws more money from their account than is available. This is also referred to as the account being overdrawn. This can be a common mistake for people who are unaware of their account balance or make a calculation error when trying to make payments with an account.
Because this can be a common problem, many banks offer a service referred to as overdraft protection, which protects bank account holders from suffering from punitive fees for accidentally overdrawing their account's available funds.
Banks vary greatly in how they tailor their policies in paying an account holder's items that are causing the overdraft. Sometimes, it can depend on how long the person has had the account for, how reliable their credit history is or how much money they may have in other accounts they hold with the particular bank. The size of overdraft fees also vary according to the bank.
Certain types of withdrawals are permitted to become overdrafts, such as checks, checks that have been converted into electronic transactions, automatic bill payments, ACH withdrawals, ATM transactions and one-time debit card transactions.Learn More
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Overdraft protection helps consumers temporarily cover purchases when an account is not sufficiently funded, but these services come with hefty fees that increase debt, according to Bankrate. Overdraft fees typically range from $10 to $35, and many financial institutions may even issue costly charges for small, inexpensive purchases.Full Answer >