Overdraft Fees Definition

Many financial institutions charge special fees on overdrafts. For example, if your checking account holds only $40 and you write a check for $100, when the check is cashed your account will have a deficit of $60. Your financial institution may still honor the check by extending a $60 overdraft on your banking account (or, it might bounce the check). Depending upon the account agreement, the bank may charge an overdraft fee ever time an overdraft situation arises. When charged, fees are typically very high and they are added to the overdraft amount. Thus, the $60 overdraft from your check might result in an $80 loan being extended.