Question

Which one of the following is the most accurate statement?

a. Banks usually extend overdraft privileges only to their largest depositors.
b. Bankers know that if they extend overdraft privileges, virtually all their depositors will end up having to pay substantial finance charges.
c. Using overdraft privileges are a great way to borrow money, because you won’t have to pay any finance charges if you pay off your balance before the end of the month.
d. If you have a low checking deposit balance and your bank has extended you overdraft privileges, then every check, debit charge, or ATM withdrawal puts you at risk of racking up substantial finance charges.

Answer 1

Answer: The following is the most accurate statement:

• Bankers know that if they extend overdraft privileges, virtually all their depositors will end up having to pay substantial finance charges.

Step-by-step explanation:

The overdraft concept takes into account payments made by the financial entity that exceed the balance of the account holder. When a company opens a checking account with a specific value, it has the possibility of writing checks for a value equal to or less than what it has in its balance, but in certain cases the bank allows you to write checks for a value greater than the account balance and it is there when the bank overdraft takes place.

With the overdraft, what is actually achieved is that the bank provides a loan, even if it is only a few days to cover the overdraft there is. This situation implies a fairly high expense in relation to the amount and duration of the debt.

It is worth mentioning that these overdrafts are designed to be short term, and it is recommended that they be 30 days maximum. In addition, the surplus becomes enforceable from the day following the granting.