What is the difference between overdraft and overdrawn

Some banks also offer to link another account to your checking account so that money is automatically transferred from that account to your checking account if it gets overdrawn. For example, say you have both your checking account and savings account at the same bank. However, you might be charged a fee for this service. Based in the Kansas City area, Mike specializes in personal finance and business topics.

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Find out more about what the changes to overdrafts mean for you. Using your overdraft too much If you find yourself dipping into your overdraft frequently, you might want to use our Budget planner to take control of your money. Take a look at our Current accounts page for places to go to help you choose the right account for you.

Read Switching bank accounts if you have an overdraft. Compare bank accounts Use our Bank account fees and charges comparison tool to see all the fees and charges that apply to bank accounts — it shows everything from overdraft fees to foreign cash withdrawal charges. Find some tricks and tactics for Living on a budget. Find out How to switch bank accounts. Visit MoneySavingExpert for more tips and tricks on cutting the cost of overdrafts.

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With an overdraft account, a bank is covering payments a customer has made that would otherwise be rejected, or in the case of actual physical checks, would bounce and be returned without payment. As with any loan, the borrower pays interest on the outstanding balance of an overdraft loan. Often, the interest on the loan is lower than the interest on credit cards, making the overdraft a better short-term option in an emergency. In many cases, there are additional fees for using overdraft protection that reduce the amount available to cover your checks, such as insufficient funds fees per check or withdrawal.

Your bank can opt to use its own funds to cover your overdraft. Another option is to link the overdraft to a credit card. If the bank uses its own funds to cover your overdraft, it typically won't affect your credit score. When a credit card is used for overdraft protection, it's possible that you can increase your debt to the point where it could affect your credit score.

However, this won't show up as a problem with overdrafts on your checking accounts. If you don't pay your overdrafts back in a predetermined amount of time, your bank can turn over your account to a collection agency. This collection action can affect your credit score and get reported to the three main credit agencies : Equifax, Experian, and TransUnion.

It depends on how the account is reported to the agencies as to whether it shows up as a problem with an overdraft on a checking account. Some but not all banks will pay overdrafts automatically, as a courtesy to the customer while charging fees, of course. Overdraft protection provides the customer with a further tool to prevent embarrassing shortfalls that reflect poorly on your ability to pay. Usually, it works by linking your checking account to a savings account, other checking account, or a line of credit.

It also avoids triggering a non-sufficient funds NSF charge. The dollar amount of overdraft protection varies by account and by the bank. Often, the customer needs to specifically request it. There are a variety of pros and cons to using overdraft protection, but one thing to bear in mind is that banks aren't providing the service out of the goodness of their hearts.

They usually charge a fee for it. As such, customers should be sure to rely on overdraft protection sparingly and only in an emergency.