What do you do when you are out of cash? Rather than feel bad and curse your luck or phone that friend requesting a bailout, you can access extra funds thanks to an overdraft loan. However, you need to register for overdraft protection to get this loan. With this protection, you can make purchases even with inadequate funds in your account. But, does that mean you can withdraw money from the overdraft account? If yes, how?
You can withdraw money from an overdraft account via the automated teller machine. However, the amount of money you can withdraw from such an account depends on the overdraft limits.
An overdraft account is a two-edged sword. It comes with some advantages and disadvantages. For this reason, it is important that you exercise caution when overdrawing your account. If you aren’t sure what an overdraft account is or how to withdraw money from an overdraft account, this post will help you. Read on to find out more.
Can I Withdraw Money From My Savings if My Checking Is Negative?
How to Withdraw Money From an Overdraft Account?
First off, let’s begin this post by understanding what a bank account overdraft is.
A bank account overdraft occurs when a person’s bank account balance reduces to below zero, leading to a negative balance. It often happens when there are no more funds in the account in question, but a pending transaction is processed via the account, leading to the account holder incurring a debt.
A debt is incurred because, with an overdraft, the bank automatically lends the amount necessary to process the transaction to the account holder, an amount that ought to be returned, along with possible fees. Though it may bail out the account holder during tight situations, costs can go out of control if overdrafts are not taken care of promptly and properly.
Example of a Bank Account Overdraft:
Imagine the following scenario. Assuming Mary went to a retail outlet and bought cosmetics amounting to $2,000 and wrote a check for the purchase. But, when the merchant deposited the check in the bank, Mary’s account only had $1,500, which means that she was $500 short of what was due for the check.
Two results are possible: either the merchant’s bank will pay him the full amount, or they’ll let the check bounce to Mary’s bank and stamp it with “NSF” (non-sufficient funds). In case the first outcome occurs, Mary will be charged for the $500 overdraft.
Withdrawing Money From Overdraft Account:
As mentioned earlier, an overdraft account allows you to continue withdrawing money even when the account has zero funds or has insufficient money to cover the amount you intend on withdrawing. In essence, an overdraft means that the bank allows customers to borrow a certain amount of money.
That said, how exactly do you withdraw money from an overdraft account?
You can withdraw money from an overdraft account by visiting the ATM. However, don’t expect to withdraw any amount you wish. How much you can take out of an overdraft account depends on your daily limit. And remember, you’ll be slapped with fees for spending more than is in your account. So if possible, try to bring your account up to positive rather than overdraft it further.
Types of Bank Account Overdrafts:
There are two types of bank account overdrafts, including authorized and unauthorized overdrafts.
- Authorized bank overdraft
With an authorized overdraft, the arrangement is made beforehand between the account holder and their bank. Both parties agree to a borrowing limit that can be used on all normal payment methods. Of course, the arrangement isn’t free. It comes with a service fee that varies per bank.
Typically, the fee is charged daily, weekly, or monthly, plus interest, as high as a 15% to 20% annual percentage rate. Considering the sometimes very high fees, overdraft arrangements can be quite expensive, especially if the borrowed amount is insignificant. That is why account holders should be meticulous to avoid overdrafts, no matter the type.
- Unauthorized bank overdraft
As the name implies, this means that the overdraft has not been agreed upon beforehand, and the account holder has spent more than his account’s remaining balance. Unauthorized overdrafts can also occur even if there has been a past agreement if the account holder has surpassed the agreed overdraft amount. Unauthorized bank account overdrafts incur higher fees, which makes them more expensive.
Can I Still Use My Debit Card if My Account Is Overdrawn?
How to Prevent Bank Account Overdrafts?
- Monitor account balance often
Of course, this may sound easy, but many individuals often ignore it. It is by regularly checking that the account holder can know how much they can spend. This can be easily done thanks to today’s technology, like a bank’s mobile application.
- Contact the bank
If one thinks the existing authorized overdraft isn’t adequate, the account holder should contact the bank and request a temporarily raised overdraft limit. If they have usually managed their account responsibly, the bank will usually approve such a request.
- Read bank letters
Many individuals are guilty of ignoring bank letters, thinking they contain irrelevant information. However, the truth is that’s, these letters often consist of important information regarding your bank account and notices of an overdraft.
- Transfer accounts to another bank
Some banks allow overdrafts and don’t charge fees or interest. They are just grateful to clients for opening and keeping an account with them. If you are susceptible to overdraft situations, it may be best to check out such a bank for your accounts.
