Overdraft Protection

AAA

DEFINITION of 'Overdraft Protection'

A line of credit that banks offer to their customers to cover their overdrafts. Overdraft protection kicks in when a customer writes a check for more than the amount in their account.

Also referred to as "cash reserve checking."

BREAKING DOWN 'Overdraft Protection'

Overdraft protection comes at a price. Although it does allow its customers to escape paying overdraft fees, it does charge interest on the amount floated to them. Many banks allow their customers to link their bank accounts to a credit card in order to avoid overdraft charges.

To learn more about overdraft protection, check out What are the pros and cons of overdraft protection?

RELATED TERMS
  1. Non-Sufficient Funds - NSF

    An acronym used in the banking industry to signify that there ...
  2. Balance Protection

    The optional coverage on an existing credit card account. Typically, ...
  3. Bad Check

    A check drawn on a nonexistent account or on an account with ...
  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. Bank Fees

    Many banks charge nominal fees for various services, such as ...
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. Credit & Loans

    Refinance Vs. Debt Restructuring: What's Best For Your Credit Score?

    Discover key differences between refinancing and restructuring debt in regard to terms, the negotiation process and effect on credit scores.
  6. Investing Basics

    Explaining Rehypothecation

    Rehypothecation occurs when an asset used as collateral for one party is reused in another transaction.
  7. Technical Indicators

    Key Financial Ratios to Analyze Retail Banks

    Learn about key financial metrics that investors use to evaluate retail banks, and how the industry is fundamentally different from most other industries.
  8. Economics

    What's an Irrevocable Letter of Credit?

    An irrevocable letter of credit (ILOC) is a financing vehicle used to facilitate commerce between two parties who are not familiar with one another.
  9. Entrepreneurship

    Small Business Loan Vs Line of Credit: How They Differ

    Understand the differences between a small business loan and a line of credit, and learn some of the most appropriate uses for each form of financing.
  10. Entrepreneurship

    5 Ways to Get Funding For Your Billion-Dollar Idea

    Understand how current billion-dollar companies gone about funding. Learn about five funding strategies to fund a billion dollar idea.
RELATED FAQS
  1. What are some examples of overdraft protection?

    The overdraft fees for a checking account can be substantial, but most banks offer several methods of overdraft protection. ... Read Full Answer >>
  2. 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 >>
  3. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  4. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  5. What are typical forms of long-term debt for a public company?

    Public companies fund their operational needs and capital expenditures with equity or debt. Most often, companies choose ... Read Full Answer >>
  6. What net interest margin is typical for a bank?

    In the United States, the average net interest margin for banks was 3.03% in the first quarter of 2015. However, this was ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Recession

    A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, ...
  2. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  3. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  4. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  5. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  6. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!