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State Finance Challenge Practice Test

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An automatic loan made to checking account customers to cover the amount of a check written in excess of the available balance in the checking book?
Correct Answer:
Overdraft Protection
Explanation:
Overdraft protection is an automatic loan from the bank that kicks in when you write a check or make a payment that would exceed your account balance. Instead of the check bouncing, the bank covers the shortfall by transferring funds from a linked account or advancing a short-term credit, so the transaction goes through. This helps avoid merchant fees and the negative mark of an overdraft on your account, though fees or interest may apply depending on the arrangement. The other options describe different financial concepts (a retirement savings account, a tax on assets at death, and an investment fund) and do not describe how an automatic loan to cover an overdraft works.

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