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CandleFocus Glossary Editor
An overdraft, also known as an overdrawing, is a situation where money is withdrawn from a checking or savings account even though it has insufficient funds to cover the withdrawal. This type of transaction is allowed by the bank, as long as the customer has given permission beforehand. The overdraft can then be used to cover unexpected expenses and bills, even when there is not enough money in the account.
When an overdraft occurs, the account holder will typically be charged an additional fee for insufficient funds, in addition to interest for the loan. The fees and interest rate for overdrafts vary between banks, so it is wise for customers to do research and compare different providers in order to find the best deal. For those who want to avoid unnecessary fees and charges, some banks offer overdraft protection plans.
Overdraft protection plans provide customers with a way of avoiding expensive fees and will protect the account balance from becoming overdrawn. Those who have signed up for an overdraft protection plan will have a credit line available to them; the plan covers any amount above the account balance when the money is due. The customer then pays the bank back once more funds have entered the account; by default, the payment will come out of the account as soon as the customer has enough money.
Overdraft protection plans can be beneficial for those who have a tendency to overdraw on their account, as the fees charged are often less than the fees charged for insufficient funds (NSF). However, it is important to remember that interest will be charged if the customer does not pay the bank back in a timely manner.
Overall, overdrafts provide customers with flexibility and the ability to cover their bills and expenses, even when their account is not full. The cost of the overdraft, however, should be borne in mind; customers should research the terms and conditions of different banks and look for the best overdraft protection plan that fits their circumstances in order to avoid large fees and interest costs.
When an overdraft occurs, the account holder will typically be charged an additional fee for insufficient funds, in addition to interest for the loan. The fees and interest rate for overdrafts vary between banks, so it is wise for customers to do research and compare different providers in order to find the best deal. For those who want to avoid unnecessary fees and charges, some banks offer overdraft protection plans.
Overdraft protection plans provide customers with a way of avoiding expensive fees and will protect the account balance from becoming overdrawn. Those who have signed up for an overdraft protection plan will have a credit line available to them; the plan covers any amount above the account balance when the money is due. The customer then pays the bank back once more funds have entered the account; by default, the payment will come out of the account as soon as the customer has enough money.
Overdraft protection plans can be beneficial for those who have a tendency to overdraw on their account, as the fees charged are often less than the fees charged for insufficient funds (NSF). However, it is important to remember that interest will be charged if the customer does not pay the bank back in a timely manner.
Overall, overdrafts provide customers with flexibility and the ability to cover their bills and expenses, even when their account is not full. The cost of the overdraft, however, should be borne in mind; customers should research the terms and conditions of different banks and look for the best overdraft protection plan that fits their circumstances in order to avoid large fees and interest costs.