What is an Overdraft Balance? (with pictures)

R. Stamm
R. Stamm
Account holders that continually write checks for more than their balance may face criminal charges.
Account holders that continually write checks for more than their balance may face criminal charges.

The term overdraft balance refers to a negative account balance occurring when a check or credit to an account exceeds the available balance. Overdrafts occur for numerous reasons such as errors made by the account holder or the bank or victimization during a robbery. The fees or interest associated with overdrafts can be costly if mistakes are repeated over time. An account holder may be subject to criminal prosecution in instances where the account is intentionally overdrawn numerous times.

A cash deposit is available immediately, and may help to prevent a bank overdraft.
A cash deposit is available immediately, and may help to prevent a bank overdraft.

The best way to prevent overdrafts is to keep accurate records. The most common reason an account becomes overdrawn is failure to regularly balance the account or inaccurate records concerning deposits and withdrawals. Banks will sometimes allow Automatic Teller Machine (ATM) or debit card withdrawals regardless of the availability of funds in an account, which is a situation that may be prevented through accurate record keeping. Electronic withdrawals are easy to forget and present a problem if not accurately recorded. An account holder may also float checks, which is a practice that involves knowingly writing a draft on an account with a negative balance hoping to make a deposit before the debit reaches the bank.

Some banks will allow ATM withdrawals  to occur regardless of the availability of funds in an account.
Some banks will allow ATM withdrawals to occur regardless of the availability of funds in an account.

Sometimes errors can occur beyond the account holder's control or through the criminal activity of others that produce an overdraft balance. For instance, the banking institution may incorrectly credit a deposit to the account without the account holder’s knowledge, or it may credit an amount for a check in a larger amount than it was written for. Some bank accounts have fees associated with them, and the bank will debit these fees against the account, automatically creating a negative or overdrawn balance. An account’s ATM card or debit card may have been stolen, creating a large overdraft balance. Account numbers may be stolen through purchases made on websites without secure shopping carts.

An overdraft occurs when a client spends more money than he or she has available, taking the account balance into the negative.
An overdraft occurs when a client spends more money than he or she has available, taking the account balance into the negative.

Regardless of the reasons an account is overdrawn, there are consequences which can be serious and costly. An account holder who repeatedly writes checks for greater than the available balance and fails to make good on those drafts may face criminal charges. Depending on the banking institution, an account with an overdraft balance may be charged anywhere from $10 US Dollars (USD) to $40 (USD). Some banking institutions allow for a certain amount of overdraft balances before charging fees, while others charge for each item presented. Other banks may charge interest fees, which are based on a percentage of the amount overdrawn.

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Discussion Comments

stoneMason

@ddljohn-- I don't think it's unfair. Banks must have overdraft fees and other consequences as deterrents or people will spend money that they don't have. These fees teach people to be more responsible and spend according to their budget.

Having an overdraft balance is a more serious issue than people realize. If over-drafting becomes frequent or if the overdraft is not taken care of, it may even affect someone's credit score.

ddljohn

My bank not only has fees for each charged item in an overdraft, but they also charge fees if the overdraft status continues for more than two weeks. So I have to deposit money, and that too quickly to avoid quickly accumulating fees. I think it's unfair.

bear78

A great way to keep a tab on an account balance is to sign up for online banking. Many banks allow customers to adjust their online banking settings so that a warning email is sent when an account balance goes under a certain amount. For example, if an account has less than one hundred dollars, the customer will receive an email saying so.

It's always a good idea to check an account balance daily, especially if many transactions are taking place. One must also take into account any pending transactions that may not have applied to the balance yet. Keeping a close eye on an account is the best way to prevent an overdraft.

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    • Account holders that continually write checks for more than their balance may face criminal charges.
      Account holders that continually write checks for more than their balance may face criminal charges.
    • A cash deposit is available immediately, and may help to prevent a bank overdraft.
      A cash deposit is available immediately, and may help to prevent a bank overdraft.
    • Some banks will allow ATM withdrawals  to occur regardless of the availability of funds in an account.
      Some banks will allow ATM withdrawals to occur regardless of the availability of funds in an account.
    • An overdraft occurs when a client spends more money than he or she has available, taking the account balance into the negative.
      An overdraft occurs when a client spends more money than he or she has available, taking the account balance into the negative.