Overdraft Protection

What is 'Overdraft Protection'

Overdraft protection is 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. Daylight Overdraft

    Occurs when a clearinghouse bank issues a payment during the ...
  2. Overdraft Cap

    The maximum dollar limit that a bank will send to another financial ...
  3. Linked Transfer Account

    Accounts held by an individual at a financial institution that ...
  4. Uncommitted Facility

    An agreement between a lender and a borrower whereby the lender ...
  5. Fee Income

    Revenue taken in by financial institutions from account-related ...
  6. Bad Check

    A check drawn on a nonexistent account or on an account with ...
Related Articles
  1. 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.
  2. Personal Finance

    Top Checking Accounts With No Overdraft Fees

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

    5 Bank Fees You May Not Know About

    Banking regulations have recently changed and fees are following suit.
  4. Managing Wealth

    Changes To Your Checking Account

    Checking accounts have evolved a lot over the years. Here are the five biggest changes that can affect your wallet.
  5. Personal Finance

    The Most Costly Banking Mistakes You Can Make

    With changing and increasing fees, it can be difficult to avoid bank charges, but investing time in finding out what your bank charges, and when, can help you save money.
  6. Investing

    7 More Things Your Banker Doesn't Want You To Know

    Your banker is not your friend, and the more you know about their motives, the better you can protect your money.
  7. Personal Finance

    Forget Your Bank Account - Use Your Credit Card

    What if you used your credit card as a bank account? Believe it or not, this strange strategy could actually work.
  8. Markets

    The Ins And Outs Of Bank Fees

    These service charges could nickel and dime you right out of your nest egg.
  9. Markets

    Check Your Checking-Account History

    Something you never thought you’d have to worry about: whether a bank will grant you a checking account. If you’ve had too many overdrafts, it might not.
  10. Personal Finance

    Best Checking Accounts For Couples

    Being a couple, especially if you both have jobs, can help you qualify for benefits and fee waivers that would be tougher to get on just one salary.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. How do you calculate payback period using Excel?

    Understand the various fees that can be assessed on a personal or business checking account, and learn methods to avoid being ... Read Answer >>
  4. How does your checking account affect your credit score?

    Learn how your checking account is related to your credit score, as well as what types of banking activities do and do not ... Read Answer >>
  5. Can a checking account affect your credit score?

    Find out if having a checking account can have a negative impact on your credit report. Generally, it doesn't, but there ... Read Answer >>
  6. Will using an overdraft hurt my credit score?

    Find out if overdrafting a bank account hurts a credit score, how reporting is handled and if a consumer is able to dispute ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center