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What Is An Overdraft Protection
What is Overdraft Protection?
Canada, being among the world’s wealthiest nations, offers a lot of financial options for its citizens. With the status of being the world’s ninth largest economy, Canada is a haven for people looking for financial security. Nevertheless, finances must always be dealt with carefully, and loans must be borrowed with caution. A useful security measure, in the case of loans, is the Overdraft Protection.
Sometimes, the amount we withdraw from our bank accounts tends to surpass the balance in the account. This is termed as an overdraft, and the person is overdrawn. An overdraft leads to a negative balance in a person’s account. Thus, in such cases, an overdraft protection plan comes in extremely handy.
An overdraft may occur due to various reasons. It could be due to an intentional short term loan taken by the borrower, or due to an ATM overdraft. Incompetence on the part of the borrower and a lack of ability to manage accounts properly might also lead to overspending. Human errors are all too common, and may lead to overdrafts as well, when the seller incorrectly debits a customer’s account.
Other reasons for an overdraft include temporary deposit holds, unexpected electronic withdrawals, authorization holds, bank fees, and chargeback to merchants. This is where possessing an overdraft protection helps. A prior agreement is made with the provider of the account for such a plan. The amount that exceeds the balance, in other words, the amount that is overdrawn, lies within the authorized overdraft. In this case, interest is charged at the decided rate.
The advantage of possessing overdraft protection is that the bank will take care of your expenses by either paying the money or covering your cheque. In the case of a person with overdraft protection writing a cheque for an amount he/she does not possess in their account, the bank assumes that they will reimburse the amount later, and enables the cheque to clear. There are conditions involved with overdraft protection, check with your bank to learn about the details of the plan.
Overdraft protection plans are generally chargeable in most banks. This ensures that the service is used for genuine purposes, apart from generating income for the bank. Usually, the overdraft protection charges are similar to the non-sufficient-funds fee, but one should get enough information about the charges before selecting a plan. The interest rates also vary with the plan. When you pick a plan which enables your overdraft amount to be regarded as a loan, it will also carry an interest. You will be charged this interest amount until you have reimbursed the bank. This works out to be cheaper than paying a solid amount of fees every time your account is hit with an overdraft. Canada has a diverse number of banks that offer citizens myriad overdraft protection plans. Approach a bank to learn more about overdraft protection. Bear in mind that when you are choosing a plan, you should be knowledgeable about its every aspect. Also, pick a plan that is most appropriate for you.
Canada, being among the world’s wealthiest nations, offers a lot of financial options for its citizens. With the status of being the world’s ninth largest economy, Canada is a haven for people looking for financial security. Nevertheless, finances must always be dealt with carefully, and loans must be borrowed with caution. A useful security measure, in the case of loans, is the Overdraft Protection.
Sometimes, the amount we withdraw from our bank accounts tends to surpass the balance in the account. This is termed as an overdraft, and the person is overdrawn. An overdraft leads to a negative balance in a person’s account. Thus, in such cases, an overdraft protection plan comes in extremely handy.
An overdraft may occur due to various reasons. It could be due to an intentional short term loan taken by the borrower, or due to an ATM overdraft. Incompetence on the part of the borrower and a lack of ability to manage accounts properly might also lead to overspending. Human errors are all too common, and may lead to overdrafts as well, when the seller incorrectly debits a customer’s account.
Other reasons for an overdraft include temporary deposit holds, unexpected electronic withdrawals, authorization holds, bank fees, and chargeback to merchants. This is where possessing an overdraft protection helps. A prior agreement is made with the provider of the account for such a plan. The amount that exceeds the balance, in other words, the amount that is overdrawn, lies within the authorized overdraft. In this case, interest is charged at the decided rate.
The advantage of possessing overdraft protection is that the bank will take care of your expenses by either paying the money or covering your cheque. In the case of a person with overdraft protection writing a cheque for an amount he/she does not possess in their account, the bank assumes that they will reimburse the amount later, and enables the cheque to clear. There are conditions involved with overdraft protection, check with your bank to learn about the details of the plan.
Overdraft protection plans are generally chargeable in most banks. This ensures that the service is used for genuine purposes, apart from generating income for the bank. Usually, the overdraft protection charges are similar to the non-sufficient-funds fee, but one should get enough information about the charges before selecting a plan. The interest rates also vary with the plan. When you pick a plan which enables your overdraft amount to be regarded as a loan, it will also carry an interest. You will be charged this interest amount until you have reimbursed the bank. This works out to be cheaper than paying a solid amount of fees every time your account is hit with an overdraft. Canada has a diverse number of banks that offer citizens myriad overdraft protection plans. Approach a bank to learn more about overdraft protection. Bear in mind that when you are choosing a plan, you should be knowledgeable about its every aspect. Also, pick a plan that is most appropriate for you.
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