WHAT IS AN OVERDRAFT?
When money is taken out of a current account more than what is available, it is called an overdraft. This can be money in a bank account in financial systems. It could be groundwater in an aquifer for water supplies.
If an overdraft has been agreed to in advance with the account provider and the amount overdrawn is within the allowed overdraft limit, interest is typically imposed at the agreed rate. Additional fees and higher interest rates may be levied if the negative balance exceeds the agreed-upon conditions.
The question is Can we overdraft a savings account? Yes or No. Before we answer that question, let’s deal with what savings account is.
SAVINGS ACCOUNT
Savings accounts are a fantastic alternative for emergency or short-term funding because they provide interest while keeping your funds immediately available.
Savings accounts provide a lower interest rate than more restrictive savings instruments and investments in exchange for the convenience and liquidity they provide.
In most cases, the amount you can remove from a savings account is limitless. The interest you earn on your savings account is taxable income.
RESTRICTIONS ON SAVINGS ACCOUNT
A savings account has some restrictions attracted to it and we are going to make some illustrations to understand those restrictions.
If you make more than six withdrawals in a month, including automated transfers for overdrafts, you will be charged a $5 fee. That implies that if you have a checking account overdraft that reduces your savings account balance to zero, you may be charged a monthly fee , which will reduce your savings account amount to zero.
CAN YOU OVERDRAFT A SAVINGS ACCOUNT?
Now, a lot of people ask this question a lot and we are going to answer it in this article.
Simply put, no. You can’t get any more money out of your savings account than you already have. Your savings account balance can still fall below zero – especially if your bank charges you exorbitant fees while your account balance is already near zero. To keep on top of your finances, you need to know how this might happen, what the consequences are, and what other options are available after all, you shouldn’t have to pay your bank to save money
No, banks do not allow savings accounts to have overdrafts. Your bank won’t allow you to withdraw more than your savings account balance, and it won’t automatically transfer more money out of your savings account than you have, so overdrawing your checking account won’t cause your savings to account to become negative. Your savings account, on the other hand, can go into a negative balance as a result of pending transactions being processed or (more often) being slapped with savings account fees while your account balance is relatively low.
HOW TO APPLY FOR OVERDRAFT?
Although it has been established that a savings account is not approved for an overdraft, other accounts are approved for overdraft. Now, applying for an overdraft for those accounts will require these steps;
To apply for an overdraft, go to your bank or lender’s official website or visit them in person. When you apply for an overdraft account, your bank will begin investigating your application and doing numerous background checks. You’ll be contacted by email or SMS if they’re pleased with your ability to repay the loan, and the money will be deposited into your account like any other type of loan. When the balance on a pre-approved account falls to zero, the account will immediately go into overdraft. The company’s vintage: When requesting an overdraft, the vintage will be determined by the paperwork relating to your company’s incorporation. The majority of overdraft arrangements demand security or collateral. For lending the suggested amount, most banks want an LTV of at least 80%. Credit Score: To verify the creditworthiness of the corporate entity and its principal owners (proprietor, partners, directors, and property owners), banks use credit scores such as CIBIL.
CONCLUSION
Savings is an account created to help your saving culture. Making an overdraft on it kind of negates what it means to be used for so, in this article we have concluded that a savings account can not be used to take an overdraft.
But other accounts can be used for them. You can check them out.
FREQUENTLY ASKED QUESTIONS
It depends on the bank, although the minimum days will be 30 days.
No. Overdraft should only be for emergencies and short term purposes.
