What is an overdraft balance?

The term overdraft balance refers to a negative account balance that occurs when a check or credit to an account exceeds the available balance. Overdrafts occur for a variety of reasons, such as mistakes made by the account holder or bank, or victimization during a robbery. The fees or interest associated with overdrafts can be expensive if the mistakes are repeated over time. An account owner may be subject to criminal prosecution in cases where the account is intentionally overdrawn multiple times.

The best way to avoid overdrafts is to keep accurate records. The most common reason for an account to run out of balance is lack of regular account balance or inaccurate records on deposits and withdrawals. Banks sometimes allow withdrawals from ATMs or debit cards regardless of the availability of funds in an account, which is a situation that can be avoided through accurate records. Electronic withdrawals are easy to forget and present a problem if not recorded accurately. An account holder may also issue floating checks, which is a practice of knowingly writing a withdrawal to an account with a negative balance in hopes of making a deposit before the debit reaches the bank.

Errors can sometimes occur outside the control of the account owner or through criminal activities by others that result in an overdraft balance. For example, the banking institution may incorrectly credit a deposit to the account without the account owner's knowledge, or may credit a check amount greater than the amount that was issued. Some bank accounts have fees associated with them, and the bank will debit these fees from the account, automatically creating a negative or withdrawn balance. An account's ATM card or debit card may have been stolen, creating a large overdraft balance. Account numbers can be stolen through purchases made on websites without secure shopping carts.

Regardless of the reasons an account is withdrawn, there are consequences that can be serious and costly. An account owner who repeatedly writes checks in excess of the available balance and fails to honor these withdrawals could face criminal charges. Depending on the banking institution, an account with an overdraft balance can be charged from $10 US Dollars (USD) to $40 US Dollars. Some banking institutions allow a certain number of overdraft balances before charging fees, while others charge for each item presented. Other banks may charge interest rates, which are based on a percentage of the amount withdrawn.

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