Legal Definitions - overdraw

To overdraw an account means to make a withdrawal, payment, or transfer that exceeds the amount of money currently available in that account. Essentially, you are spending more money than you actually have on deposit, which can result in a negative balance or a transaction being declined.

• Example 1: Personal Checking Account

  Imagine David has $100 in his checking account. He then writes a check for $120 to pay his internet bill. When the internet company deposits the check, David's bank attempts to process it. Since the check amount ($120) is greater than his available balance ($100), David has overdrawn his account by $20. The bank might either decline the check (causing it to "bounce") or pay it and charge David an overdraft fee, leaving his account with a negative balance.

• Example 2: Debit Card Purchase

  Sarah is at the grocery store and her bank balance is $50. She selects groceries totaling $65 and attempts to pay with her debit card. Because the purchase amount ($65) is more than the funds she has available ($50), Sarah is attempting to overdraw her account. Depending on her bank's specific policies and whether she has opted into overdraft protection, the transaction might be declined at the point of sale, or it might go through, resulting in a negative balance and an associated fee.

• Example 3: Business Account Payment

  A small consulting firm, "Bright Ideas Inc.," has $800 in its business checking account. The owner needs to pay a freelance graphic designer $1,000 for a completed project and initiates an electronic funds transfer (EFT) for that amount. By attempting to transfer $1,000 when only $800 is available, Bright Ideas Inc. is overdrawing its account by $200. This action could lead to the transfer being rejected, or the bank might process it and charge the business an overdraft fee, requiring the firm to deposit additional funds to cover the deficit.