Overdrafting

Overdrafting occurs when a customer withdraws more money from their bank account than is available in that account. This typically happens when a check is written for more than the available balance or when an electronic transaction, such as a debit card purchase or ATM withdrawal, exceeds the funds on deposit. Banks may have different policies regarding overdrafts. Some may automatically decline transactions that would result in an overdraft, while others may allow the transaction to go through and charge the customer an overdraft fee.

Overdraft fees can be substantial and are often a flat fee per overdraft incident. Some banks also charge interest on the overdrawn amount. Customers can opt into overdraft protection services, which link a savings account or credit line to the checking account. If an overdraft occurs, funds are automatically transferred from the linked account to cover the difference, potentially avoiding a fee or incurring a smaller transfer fee. It is important for individuals to be aware of their bank's overdraft policies and to monitor their account balances regularly to avoid unexpected fees. Understanding these policies can help in managing personal finances effectively.