What is an overdraft?
An overdraft occurs when you don’t have enough money in your account to cover a transaction, but the bank pays the transaction anyway.
You can overdraw your account through checks, ATM transactions, debit card purchases, automatic bill payments, and electronic or in-person withdrawals.
Many banks and credit unions offer overdraft protection programs in which the bank or credit union generally pays the transaction and charges you a fee (in addition to requiring repayment of the overdraft amount). Overdrafts can also be covered through a transfer of funds from a linked account, credit card, or line of credit.
Banks and credit unions have different fees associated with overdraft protection so, when shopping for a checking account, be sure to ask what the account terms are with respect to the cost of overdraft protection, a linked account or a line of credit.