Daylight Overdraft

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DEFINITION of 'Daylight Overdraft'

Occurs when a clearinghouse bank issues a payment during the day that is in excess of the originator's reserve account balance. Daylight overdrafts must be covered by the end of the business day.

INVESTOPEDIA EXPLAINS 'Daylight Overdraft'

In order to encourage banks to manage and reduce potential default risks, the Federal Reserve Board assesses a charge for daylight overdrafts.

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