Overdraft Cap

AAA

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.

INVESTOPEDIA EXPLAINS '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. Daylight Overdraft

    Occurs when a clearinghouse bank issues a payment during the ...
  2. Demand Draft

    A method used by individuals to make transfer payments from one ...
  3. Fedwire

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

    A slang word for a check that cannot be processed because the ...
  5. Overdraft

    An extension of credit from a lending institution when an account ...
  6. Remote Deposit Capture

    A technology-based method that lets banks accept checks for deposit ...
RELATED FAQS
  1. Are credit cards and debit cards considered debt instruments?

    Consumer debt instruments allow people to borrow money at specific interest rates. In recent years, the credit industry has ... Read Full Answer >>
Related Articles
  1. Options & Futures

    The Ins And Outs Of Bank Fees

    These service charges could nickel and dime you right out of your nest egg.
  2. Insurance

    Your First Checking Account

    This owner's manual will show you what to expect from your bank.
  3. Personal Finance

    Cut Your Bank Fees

    Find out how to get the bank to pay you for using their services, not the other way around.
  4. Budgeting

    When Good People Write Bad Checks

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

    4 Tips To Cut Your Monthly Bank Fees

    We asked banking professions to share their biggest tips for tackling bank fees, and hopefully save more even before spring hits.
  6. Credit & Loans

    Understanding Loan-to-Value Ratio

    Loan-to-value ratio (LVR) is a tool used to evaluate the risk in a collateralized loan, usually a mortgage loan.
  7. Investing

    The Future Of Mobile Banking

    Typically slow to react to technological change, retail banks are finally recognizing the benefits it provides to consumers as well as the cost savings it gives the firm.
  8. Entrepreneurship

    JPMorgan vs. Goldman Sachs: A Tale of Two Stocks

    The performance of JPMorgan and Goldman has been impressive, but one has a slight edge.
  9. Stock Analysis

    How Citigroup Ensured That It's Too Big to Fail

    As a business, Citi has everything going for it. Scale, operational breadth...and the ear of key policymakers.
  10. Investing

    Can You Bank on BofA in 2015 (and Beyond)?

    An in-depth look at BofA, one of the most widely-traded stocks on Wall Street.

You May Also Like

Hot Definitions
  1. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  2. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  3. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  4. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  5. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
Trading Center