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Overdraft
A situation in which an account holder writes a check or makes an electronic transaction for more money than is available in their account.
More Details
An overdraft is a situation in which an account holder writes a check or makes an electronic transaction for more money than is available in their account. This can occur when an account holder does not have sufficient funds in their account to cover the amount of the check or transaction, or when an account holder exceeds the available balance on their account.
Example
Imagine that you have a checking account with a balance of $100, but you write a check for $200. This would result in an overdraft, as you do not have enough money in your account to cover the check. Overdrafts can be costly, as they may result in overdraft fees and other charges being assessed by the bank or credit union. It is important to carefully manage your checking account and to avoid overdrafts whenever possible.
Related Terms
Trust
A legal arrangement in which one party transfers ownership of property to another person or entity to be managed for the benefit of a third party.
Clearing House
An institution that processes financial transactions, such as the exchange of securities, between two parties.
Money Market Account
A type of savings account that offers higher interest rates and has higher minimum balance requirements.