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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
Clearing House
An institution that processes financial transactions, such as the exchange of securities, between two parties.
Mutual Fund
A type of fund managed by professional investment managers that pools money from many investors and uses that money to buy a diversified portfolio.
Secured Credit Card
A credit card designed to help repair or establish credit with a predetermined credit limit secured by a collateral savings account.