What is an Overdraft Checking Account?

An overdraft checking account is a type of bank account that has a line of credit or other funding source attached to it. This means the owner doesn't have to worry if he writes checks that are for more than the amount he has in the account. Instead of being faced with bounced checks and overdraft fees in such a case, an overdraft checking account holder would have his checks paid by the bank and may pay a smaller fee or finance charge instead. Often, people who have trouble balancing their checkbooks may choose to open overdraft checking accounts, but these accounts may also prove useful for people who are simply interested in having added financial peace of mind.

An individual typically opens an overdraft checking account in order to have some protection in the event of financial mishaps. With this type of checking account, a person needn't be as concerned if he forgets about a check he wrote or needs to write a check that will exceed his balance. Likewise, he may not have to be concerned about automatic withdrawals that cause his account to be overdrawn. When any of these things happen, and there is too little money in his account, the funds are automatically transferred to his account from a line of credit, linked credit card, or savings account.

The benefits of an overdraft checking account may include more than just overdraft fees that would be charged on a single overdraft. This type of protection may not only help an account holder avoid the fees related to bounced checks, but also the embarrassment that often goes hand in hand with overdrafts. Likewise, this sort of protection may help a person avoid having his balance depleted by multiple fees that make other incoming checks and debits bounce.

Many banks offer overdraft checking accounts to their customers, but each account and plan may be somewhat different. If a person wants to open an overdraft checking account that has a line of credit, he will typically have to submit to a credit check. Some banks will also provide overdraft protection in the form of credit card advances, but this is often a more expensive form of protection. A person may alternatively have his checking account linked to his savings account, ensuring that overdrafts are drawn from his available savings balance. No matter which type of protection an account holder chooses, there are usually fees involved; they may be less than regular overdraft fees, however.