What is an overdraft?

An overdraft refers to a situation where a bank account holder writes a check or makes a withdrawal that exceeds the available balance in their account. When this occurs, the bank may cover the shortage, allowing the transaction to proceed. This effectively creates a negative balance in the account, and the account holder may be charged an overdraft fee for this service.

Understanding this concept is crucial for anyone managing personal finances since overdrafts can lead to additional fees and are a sign of financial mismanagement if they occur frequently. In contrast, other options present different banking scenarios. For instance, a bank's refusal to honor a check indicates a rejection of a transaction but does not specifically denote an overdraft situation. The notion of a savings strategy involves setting aside funds and does not relate to the concept of overdrawing an account. Lastly, a withdrawal made without a bank card doesn’t inherently mean an overdraft; it simply describes a method of accessing funds, regardless of account balance.