What Is an Overdraft

Sun, 03 May 2026 01:37:40 +0000

**What Is an Overdraft? Understanding How It Works and Why It Matters** In a fast-paced economy where financial stability feels more essential than ever, a quiet but growing conversation surrounds a simple banking term: overdraft. With rising costs and unexpected expenses shaping daily life, more people are asking what an overdraft really means—and why it could impact their finances. What is an overdraft? In simple terms, an overdraft occurs when you spend more money than you have available in your bank account, with your financial institution covering the shortfall—either by deferring funds from a future deposit or charging fees and interest. It’s a safety net built into modern banking, designed to prevent account closures due to insufficient funds. Overdraft protection has become increasingly common, embedded deeply in digital banking apps and popular with consumers seeking flexibility. Yet despite its prevalence, many people remain unsure of how it works, its true cost, and when it’s best to use it.