Overdraft

The act of withdrawing funds or incurring charges that exceed the available credit in a bank account results in an overdraft. This action creates a negative balance, meaning the account holder owes money to the financial institution. While banks offer various services to prevent this—such as linking accounts for automatic transfers or providing overdraft protection—these arrangements are not without cost. When an overdraft occurs, institutions typically charge immediate fees for the transaction, in addition to potential interest charges on the negative balance until the account is brought back into positive standing. Understanding these mechanics is crucial because failing to manage available funds can lead to unexpected financial penalties and negatively impact creditworthiness.