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Finance Dictionary and Glossary of Investment Terms
A checking account feature in which a person has a line of credit to write checks for more than the actual account balance. Instead of getting charged about $25 for bouncing a check, overdraft protection will in effect provide the account holder with an instant loan. The interest rate will be extremely high, but if it is paid off quickly it is usually much less expensive than the bounced check fee. Some banks do charge a fee when an account balance falls below zero even if the account holder has overdraft protection, but it's still significantly less than the bounced check fee.