Overdraft
When a bank covers a transaction that exceeds your available balance and charges a fee for the short-term loan.
An overdraft happens when a charge is larger than the money in the account, and the bank pays it anyway. Mechanically, this is a short-term loan: the bank fronts the difference, your balance goes negative, and a fee is typically added — commonly around $35, though many banks have reduced or eliminated it. The next deposit repays the bank first.
The fee is flat, which is what makes small overdrafts expensive in relative terms. A $24 charge covered for three days at a $35 fee is a $35 cost on a $24 loan. Some banks also charge per item, so several small charges hitting an empty account can produce several fees.
For everyday debit card purchases, US banks must ask permission before enrolling an account in overdraft coverage. Declining means a card swipe over the balance is simply refused, with no fee. Checks and automatic payments follow different rules and can still overdraw or bounce.
Plumb is financial education, not financial, investment, tax, or legal advice.