Overdraft

An overdraft occurs when an individual withdraws more money from their bank account than is available, resulting in a negative balance. This financial tool allows account holders to temporarily borrow funds up to an approved limit, offering a safety net for unexpected expenses or timing mismatches between income and outgoings. While convenient, overdrafts often come with fees and interest charges, making them an expensive form of short-term credit if not managed carefully. Banks may offer different types of overdraft protection plans, including automatic transfers from savings accounts or linked credit lines. Responsible use of overdrafts can prevent bounced checks and declined transactions, but it is essential to monitor account balances closely to avoid excessive costs and potential financial difficulties.