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 Protection

    Overdraft protection is a line of credit that banks offer to ...
  2. Daylight Overdraft

    A daylight overdraft is when a bank withdraws more money than ...
  3. Capped Fund

    A capped fund is a fund with specified maximum limitations included ...
  4. Annual Cap

    A clause found in the contract of an adjustable-rate mortgage ...
  5. Large Cap - Big Cap

    Large cap refers to a company with a market capitalization value ...
  6. Price Cap Regulation

    A form of economic regulation generally specific to the utility ...
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

    When Good People Write Bad Checks

    Overdraft protection can help when you overestimate your balance, but it will cost you.
  3. Insights

    Credit Unions Rake In Record Overdraft Revenue

    Banks and credit unions saw overdraft fee income rise to the highest levels since the Fed prohibited automatic ATM and debit card charges.
  4. 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.
  5. Investing

    Small Cap Vs. Mid Cap Vs. Large Cap Stocks in 2016

    Find out what to expect from small-, mid- and large-cap stocks in 2016, learn and why markets might not perform much better than 2015.
  6. Investing

    How to Analyze Mid-Cap Stocks

    Mid-cap stocks often outperform both large caps and small caps with very little added risk.
  7. 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.
  8. Investing

    What's a Small Cap Stock?

    The “cap” in small cap stocks refers to a company’s capitalization as determined by the total market value of its publicly traded shares. Small cap stocks are generally defined as the stock of ...
  9. 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.
  10. Insights

    Bank of America Turns Bearish on Small-Cap Stocks

    Bank of America dumps small caps as the Russell 2000 can't keep up with the big boys.
RELATED FAQS
  1. What is the difference between overdraft and cash credit?

    The primary differences between overdraft and cash credit lie in how they are secured and whether the money is lent out of ... Read Answer >>
  2. Reading the pros and cons of overdraft protection

    The good news: Checks always clear. The bad: The bank will charge you an overdraft fee, even though you’re using your own ... 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. Can a checking account go negative?

    Find out about negative checking account balances and the ramifications. There is a price to pay, but smart consumers can ... Read Answer >>
  6. Will Netspend cards let you overdraw your account?

    Discover if Netspend debit cards allow you to overdraw your account and learn how to enroll in Netspend's overdraft protection ... Read Answer >>
Trading Center