DEFINITION of 'Overdraft Cap'

The maximum dollar limit that a bank will send to another financial institution in one day. The overdraft cap limits the amount that banks will send via private payment or the Fedwire network. This cap limits a bank's daylight-overdraft exposure.

BREAKING DOWN 'Overdraft Cap'

The overdraft cap varies from one bank to another. It is a multiple of each bank's risk-based capital. The cap applies not only between banks but also between banks, brokerage firms and credit unions, as well as other financial institutions.

RELATED TERMS
  1. Overdraft

    An extension of credit from a lending institution when an account ...
  2. Overdraft Protection

    A line of credit that banks offer to their customers to cover ...
  3. Fedwire

    A real-time gross settlement system (RTGS) of central bank money ...
  4. Daylight Overdraft

    Occurs when a clearinghouse bank issues a payment during the ...
  5. Clearing House Interbank Payments ...

    The primary clearing house in the U.S. for large banking transactions. ...
  6. Annual Cap

    A clause found in the contract of an adjustable-rate mortgage ...
Related Articles
  1. Personal Finance

    Bank Overdraft Changes: What You Need To Know

    New laws to protect consumers should be in place by the summer. Find out what will change and how it could affect you.
  2. Personal Finance

    4 Ways to Ditch Bank Overdraft Fees

    At $35 a pop, overdraft fees can mount up quickly. Here are 4 different strategies for avoiding them.
  3. Personal Finance

    When Good People Write Bad Checks

    Overdraft protection can help when you overestimate your balance, but it will cost you.
  4. Personal Finance

    Top Checking Accounts With No Overdraft Fees

    Choosing the right checking account could save you hundreds of dollars in fees every year.
  5. Managing Wealth

    How To Cut Your Banking Fees

    Smart consumers can side-step most of the new bank fees by investing some time and effort.
  6. Investing

    An Introduction To Small Cap Stocks

    When it comes to a company's size, bigger isn't always better for investors. Find out more here.
  7. Investing

    Market Capitalization Defined

    Find out the differences between mega-, large-, mid- and small-cap stocks and how each suits different investing styles.
  8. Investing

    Market Cap Valuations For 2010

    How do the P/E ratios for the major market caps stack up against one another, and against themselves, for 2010?
  9. Insights

    Understanding Small- And Big-Cap Stocks

    If you don't realize how big small-cap stocks can be, you'll miss some good investment opportunities.
RELATED FAQS
  1. What’s the difference between overdraft protection and overdraft settings?

    Learn what overdraft settings are, how they impact your relationship with your bank and how they govern the overdraft protections ... Read Answer >>
  2. What are the pros and cons of overdraft protection?

    If you sign up for overdraft protection and link your checking account to your savings account, a credit card or an overdraft ... Read Answer >>
  3. What are some examples of overdraft protection?

    Establish overdraft protection plans to ensure that your bills are paid on time. Use overdraft protection carefully to avoid ... Read Answer >>
  4. What's a better way to borrow money: overdraft or credit cards?

    Overdraft and credit cards will allow you to spend more money than you have, but whichever option you choose, be sure to ... Read Answer >>
  5. How does NetSpend overdraft protection work?

    Discover how NetSpend overdraft protection works and how NetSpend charges a $15 fee for each overdraft transaction, with ... Read Answer >>
  6. What is the best way to invest in small cap companies?

    Learn about the best ways to invest in small cap companies. Find out when small cap companies yield the highest return and ... Read Answer >>
Trading Center