What is the purpose of overdraft protection?

The purpose of overdraft protection is to cover checks or debits that exceed the account balance. This financial service is designed to prevent transactions from being declined due to insufficient funds, offering a safety net when unexpected expenses arise or when there is a temporary shortfall in the account balance.

When overdraft protection is activated, the bank allows the account holder to withdraw more money than they have available, often up to a certain limit. This can help avoid bounced checks or declined payments, which can incur fees and negatively impact the account holder's credit. Overdraft protection can also provide peace of mind, knowing that essential payments can be processed even if immediate funds are unavailable.

The other options don’t adequately reflect the main purpose of overdraft protection, as they focus on credit enhancement, loan interest reduction, and fee waiving, which are not the primary function of this service.