What is an overdraft?

What is an overdraft?

• A. A loan secured by personal assets
• B. A surplus balance in a bank account
• C. A deficit in a bank account
• D. An investment account with high yields

Answer: (C)

An overdraft occurs when an account holder withdraws more money than is available in their account, resulting in a negative balance. This situation indicates that the account is in deficit because the bank has allowed the account holder to borrow funds up to a certain limit to cover transactions. An overdraft is typically associated with checking accounts, where it serves as a short-term borrowing solution to cover expenses when funds are insufficient. In this context, the correct understanding of an overdraft is that it represents a deficit, which contrasts with the concept of a surplus or excess funds in a bank account. The other choices do not align with the definition of an overdraft: personal asset-secured loans and investment accounts with high yields pertain to other financial instruments and situations unrelated to an overdraft, while a surplus balance suggests that there are ample funds available rather than a borrowing scenario.

An overdraft occurs when an account holder withdraws more money than is available in their account, resulting in a negative balance. This situation indicates that the account is in deficit because the bank has allowed the account holder to borrow funds up to a certain limit to cover transactions. An overdraft is typically associated with checking accounts, where it serves as a short-term borrowing solution to cover expenses when funds are insufficient.

In this context, the correct understanding of an overdraft is that it represents a deficit, which contrasts with the concept of a surplus or excess funds in a bank account. The other choices do not align with the definition of an overdraft: personal asset-secured loans and investment accounts with high yields pertain to other financial instruments and situations unrelated to an overdraft, while a surplus balance suggests that there are ample funds available rather than a borrowing scenario.