How to Prevent Bank Account Overdrafts?

What is Bank Overdraft?

A Bank Overdraft can be defined as a short-term unsecured credit facility provided by the bank to its customers to meet their short-term requirements. A Bank Overdraft gets started when the amount in the customer’s account comes down to zero, and the customer wishes to withdraw more. In this scenario, the balance of the customer’s account becomes negative. Banks generally provide overdraft facilities to those customers with whom the bank has a good relationship. The overdraft amount is subject to interest, and interest rates may vary from bank to bank....

Features of Bank Overdraft

1. Interest: The amount of overdraft is subject to interest, and this interest rate may vary from bank to bank and from customer to customer as well. The bank can also increase the interest rates in case of default payment from the end of the customer. This interest rate is calculated daily and is charged every month....

Types of Bank Overdrafts

Overdraft is the amount that the bank allows the customer to withdraw when the balance of their account surpasses zero. There are many types of bank overdrafts available in the market. But the main types of bank overdrafts that all the banks provide includes Overdraft against Salary, Overdraft on Savings Account, and Overdraft against Time Deposits....

Advantages of Bank Overdraft

1. Interest payment: The customer needs to pay interest on only the amount that he/she withdrew in the form of an overdraft and not on the whole limit. Interest rates on bank overdrafts are lower than the interest rates on credit cards....

Disadvantages of Bank Overdraft

1. Interest Rates: Banks may charge a high rate of interest from the customers for the overdraft. Also, interest rates are variable, not fixed and can change frequently. Banks can make the interest rates higher in case of payment default from the end of customers....

How to Prevent Bank Account Overdrafts?

Bank overdrafts can be prevented, so easily if the concerned customer is aware of his/her account balance and decides to spend wisely. The customer should check their bank statement from time to time in order to get knowledge of the bank balance. Customers can also get an SMS facility started from the bank to get an SMS of the remaining bank balance after every transaction. Keeping a good relationship with the bank will also be helpful. Sometimes, the the bank pays the overdraft amount of the customer on its behalf. This practice does not affect the credit score of the customer....

Interest Rates on Banks Overdraft of Different Banks in India

Banks Interest Rates on Bank Overdraft Axis Bank 14.95% – 19.20% p.a. Bajaj FinServ 9.75% – 30% p.a. HDFC Bank 10% – 22.50% p.a. Kotak Mahindra Bank 16% – 26% p.a. State Bank of India 9.65% Onwards...

Is Bank Overdraft an Asset or a Liability?

A bank overdraft is a kind of liability for the customer that he/she must pay during the accounting period. Bank Overdraft is shown on the liability side of the balance sheet....