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."

INVESTOPEDIA EXPLAINS '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. Bounced Check

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

    An extension of credit from a lending institution when an account ...
  5. Bad Check

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

    Many banks charge nominal fees for various services, such as ...
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. Is the banking sector subject to any seasonal trends?

    The banking industry, including retail and investment banks, is subject to seasonal trends. Seasonality is most commonly ... Read Full Answer >>
  4. How would a standby letter of credit be used during an export transaction?

    A standby letter of credit is typically used to provide a bank guarantee of payment for an exporter in the event that an ... Read Full Answer >>
  5. What are some of the well-known no-load funds?

    The capital adequacy ratio promotes stability and efficiency of worldwide financial systems and banks. The capital to risk-weighted ... Read Full Answer >>
  6. How do you calculate payback period using Excel?

    Each financial institution offers similar products for its banking customers, including savings accounts, certificates of ... 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. Savings

    What is a Demand Deposit?

    A demand deposit is any type of account where the money in the account may be withdrawn at any time without prior notice to the financial institution.
  6. Savings

    Is A Premium Checking Account Worth It?

    Premium checking accounts give you free checking and other perks in return for keeping a certain balance in the bank. Is that the best use of your money?
  7. Savings

    Top Premium Checking Accounts of 2015

    Which banks offer the best deals for premium checking accounts – and what do you have to do to qualify for one?
  8. Economics

    Explaining Risk-Weighted Assets

    Risk-weighted assets is a banking term that refers to a method of measuring the risk inherent in a bank’s assets, which is typically its loan portfolio.
  9. Savings

    Understanding Savings Accounts

    A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.
  10. Personal Finance

    How The SWIFT System Works

    SWIFT has become the global standard for processing instructions and messages for payment and securities trade transactions. Investopedia explains what SWIFT is, how it works, how it makes money, ...

You May Also Like

Hot Definitions
  1. Fracking

    A slang term for hydraulic fracturing. Fracking refers to the procedure of creating fractures in rocks and rock formations ...
  2. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  3. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  4. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  5. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  6. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
Trading Center