Discovered in a bank account

banking

An overdraft in a bank account is a situation in which a person has a negative balance in their account (debit balance), mainly due to poor financial management of the checking account, although it is true that in some cases it may be due to computer errors.

There are certain accounts that allow overdrafts up to a certain limit and there are others that do not allow it in any case. There are two types of overdraft on a bank account:

  • Checking and savings accounts: They do not allow being overdrawn (red numbers).
  • Credit accounts: If they allow being overdrawn, it is as if the bank granted a loan.

Those accounts that allow overdrafts apply an interest rate per day for the overdraft on the total balance in the account at the time the penalty is applied. The interest rate that is applied is the equivalent annual rate (APR), which is prorated on a daily basis.

Causes that originate a bank overdraft

The reasons through which an account is overdrawn can be of many types, some examples are:

  • They have given the customer a receipt for the electricity and telephone bill and he had no balance.
  • The mortgage payment that is charged to the account on the fifth of each month and the client was thought to be on the sixth of each month.
  • You have made a purchase-sale on credit, you have had a recalculation of guarantees and you have no money in the account.
  • The customer has misused the credit card and the account associated with it has been charged.

Practical example

The most common example occurs in the payroll account when the company you work for is late in paying the payroll and they pass you the mobile bill worth 60 euros.

The account is negative that same day (red numbers), suppose that the second day of the month and they do not pay you the payroll until the 5th of that month. Let's imagine that the bank with whom your payroll is domiciled charges you an interest rate of 15% APR for overdraft. In this way, the money they charge us is the following:

First we calculate the apportionment by the number of days:

Proration = 3 days / 360 business days = 0.008

Subsequently, we calculate the prorated penalty for the number of days overdrawn, that is:

Prorated penalty = 0.008 * 15% = 0.0012 → 0.12%

Therefore:

Discovered = 0.0012 * 60 = 0.072 euros

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