Overdraft

Spending more than you have in your checking account.

An overdraft happens when a payment goes through for more than your balance. Banks may cover it and charge an overdraft fee, or decline it and sometimes charge a returned-payment fee.

For everyday debit card purchases and ATM withdrawals, banks need you to opt in before they can charge overdraft fees. Many banks now offer low or no overdraft fees, or a small cushion. Planning bills around paydays helps avoid overdrafts in the first place.