Overdraft

Definition

An overdraft on a bank account is when more money is withdrawn than the account currently holds. 

Overdrafts are a temporary loan from the bank to help people when they need extra cash to cover a bill or a purchase. Overdrafts can be pre-arranged with a bank to allow you to be overdrawn (borrow) past the amount that is already in your bank account. Most banks will charge either a monthly or daily usage fee as well as interest charges. 

Most banks will only allow you to borrow up to a certain amount. They offer this service because they make money on it, by charging interest and fees and the money borrowed.

The more you use it, the more money the bank makes.

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