What does it mean to Overdraft?

I’m glad you asked! If you have opened a bank account, it is important to know how much you have in your account. An overdraft occurs when you have spent, or promised to spend, more money from your bank account than you deposited into it. This can be done by paying with a check, using a debit card, or allowing a company to draft or debit (pull money automatically) your account. This most often occurs when someone forgets to check how much money they have in their account before they spend money.

When you overdraw an account, your bank will normally charge you a fee for every transaction that brought your account’s balance below zero. This fee is usually thirty five dollars (in the US). Additionally, many banks charge an additional fee if your account stays overdrawn for more than five days. This is done differently in the United States than many foreign countries. Instead of being charged interest for the money you spend that you didn’t have, a standard fee is assessed. This fee does not vary based on the amount of the charge, such that overdrawing your account for two dollars is just as expensive as overdrawing your account for two hundred.

Normally you can avoid paying an overdraft fee by depositing money into your account to cover the money you spent within the same working day. So, if you overdraw your account by thirty dollars on Monday morning, you can usually avoid a fee on your account by depositing enough money to bring your account back to positive (thirty dollars) by Monday afternoon. Many banks have a “cut off” time, usually 4pm or 2pm. If you bring your account positive after this cut off time, you will still be charged a fee. Make sure to ask your bank when their “cut off” time is, just in case you have to know!

If you do overdraw your account, and are assessed a fee, you can try calling your bank to see if they will refund you the fee. If you’ve never overdrawn an account before and explain this to the representative, they may refund the fee for you. If you overdraw an account too often, your bank may decide that they no longer want to do business with you, and close your account.

Be sure to take your finances seriously and keep a transaction register, and this doesn’t have to happen to you.


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