Overnight Overdraft Policy

An overnight overdraft is an unauthorized extension of credit that occurs when a depository institution ends the Federal Reserve's accounting day with a negative closing balance in its master account. In the interest of achieving the equitable treatment of all account holders, promoting sound banking practices, and limiting risk to the Federal Reserve System, it is the policy of the Federal Reserve that master accounts should be maintained on a non-negative daily settlement basis. An account holder should manage its account in such a way as to avoid overnight overdrafts.

Overnight Overdraft Charge Calculation

If an overnight overdraft is unavoidable, the charge is calculated based on the amount of the draft and the federal funds rate, with a minimum charge of $100. An overnight overdraft extending over a weekend or Reserve Bank holiday is usually considered one occurrence, though the Reserve Bank will assess a charge for each day that the negative balance is outstanding.

If an institution incurs an excessive number of overnight overdrafts (more than three occurrences in any 12-month period), the overnight overdraft calculation rate increases by one percent for each additional occurrence. Moreover, the Reserve Bank will take other actions to minimize continued overnight overdrafts. These measures are similar to those taken in response to net debit cap violations.

If an overnight overdraft is not attributable to a Reserve Bank error, a charge will be assessed. Since the account holder is responsible for managing the account, that institution will be charged for any overnight overdrafts, including those resulting from an error by a correspondent or other third party.

Reserve Banks provide information tools to assist account holders, but these should not replace an institution’s internal controls. Account management is ultimately the responsibility of the account holder.