Overdrafts occur when you do not have enough money in your account to cover a transaction, but your bank pays it anyway. Learn how overdrafts occur and services your bank may provide in the event you overdraw your account.
What Is an Overdraft?
An overdraft occurs when you do not have adequate money in your checking report or money marketplace report to cover a transaction, but the depository financial institution pays it anyhow .
Depending on your needs, your bank ’ randomness overdraft service can provide a useful benefit. For example, it can save you the frustration of having a buy declined and can help cover authoritative bills. however, it ’ randomness authoritative to remember that overdrafts may besides come with fees, and how those fees are charged can be confusing .
“ Banks offer overdraft services as a benefit to their customers, and the services can provide want funds in a touch. But banks never want to see person dig themselves a hole they can ’ t climb out of, ” says Jimmy Oliver, Senior Vice President, Consumer Omni Channel and Customer Contact Strategy at Regions Bank .
How Do Overdraft Fees Work?
Checks, debit card transactions, and automatic payments can wholly trigger an overdraft. For certain electronic payments — specifically ATM and erstwhile debit card transactions ( such as a grocery store buy ) — the Consumer Financial Protection Bureau ( CFPB ) has implemented nonindulgent rules around how banks disclose their overdraft services and how banks charge overdraft fees.
If you want to withdraw money from an ATM or pay for something with a debit calling card, and you have insufficient funds, the bank can merely cover the transaction ( and charge you a fee ) if you opt in for the bank ’ sulfur overdraft overhaul. Whether to opt in is a personal choice for consumers : Some don ’ t want the trouble of a decline transaction. Others prefer to avoid fees .
Keep in beware that some banks offer an average solution, often known as overdraft protection. If you choose to use this service, the depository financial institution can use a associate report, such as a save report or line of credit, to cover the transaction if you are short of funds in your check report. This servicing normally comes with a fee, but it is much much smaller than an overdraft fee .
How Do Banks Process Transactions?
As mentioned, any kind of transaction on your account could create an overdraft. But the arrange in which these transactions are applied to your account may determine the numeral of overdraft fees you are charged.
There are a kind of ways in which banks may post transactions to your score. For case, some banks may post transactions based on the sum of the transaction —often phrased as a “ high-to-low ” posting order. other banks may post transactions in consecutive order, or the orderliness in which the bank receives the transactions. Yet other banks may post transactions using a combination of factors, including when the transaction was received and the type of transaction .
In addition to understanding the order in which your bank posts transactions to your report, you should familiarize yourself with how your bank allocates funds during posting. many banks place a “ hold ” on the funds available for processing in order to reserve funds for electronic transactions that have been authorized but have not however posted to your account. These holds reduce the funds available to cover posting items, which can result in overdraft fees.
No Substitute for Good Money Management
While understanding your savings bank ’ randomness posting order can help, there is no utility for good money management. Oliver recommends making a family budget and balancing your checkbook on a regular basis. Avoid caprice buy by making a shopping list. For households with share accounts, give one person manipulate of the debit poster and checkbook .
The attempt you make upfront to avoid overdrawing your account can save you money in the end .
Learn how Regions posts transactions to customer accounts .
The terms of your financial institution’s account agreement will control how your account works and how related fees are charged.