Things to Know About Overdraft Protection

By Arin Imad – AVP, Retail Manager

As mentioned above, overdrafts happen when you spend more money than you have in your account. Overdraft protection can be used to cover that shortfall by transferring money from another one of your accounts, or by covering the cost as a loan or credit charge that would be repaid with interest.

For personal accounts, overdraft protection options are typically an opt-in feature, meaning it’s usually discussed as an option to add on when you open your account. If you’re unsure if you have it on your account, it’s best to get in touch with your financial institution to find out for certain.

If you choose not to utilize overdraft protection options such as linking your savings as a back-up or a checking reserve line of credit, there are still two additional choices. When you initiate a debit card or ATM transaction and don’t have enough money to cover the cost, the transaction could either be covered by your bank for a fee or will be declined at no charge. (However, it’s important to note that for the latter option, in the event of an evening fill-up at the gas station or a warm beverage during a colder month, these transactions will all be denied and will not allow for you to proceed.)

Additionally, if you don’t have the funds to cover a scheduled bill payment, you could face both a non-sufficient funds (NSF) fee and possibly a late-payment fee from your financial institution. Again, that’s where overdraft protection comes in, either allowing money to be pulled from a linked account to cover the shortfall or attaching the charge to a linked credit account.

While overdraft protection services are an option to help cover you in the case of an overdrawn account, you can (and should!) always closely monitor your account with online and mobile banking. By setting up email or text alerts and closely watching your account balance, you’ll know when you’re close to overdrawing and you’ll be able to transfer money on your own to prevent a shortfall.

In addition to tracking your daily balance online, you should also keep a dedicated ledger of automated (scheduled) payments, recent purchases and deposits. Our user-friendly Know Your Balance worksheet definitely fits the bill! Use it to easily compare against your reflected daily balance online, which will in turn ensure all transactions are accounted for, including the ones that may not immediately show up in your online account.

An added bonus is that, by creating these habits, you can easily become better at cutting spending. This is especially true when it comes to purchases that may be considered more frivolous (Like that third cup of fancy coffee this week. Oops!) until you have sufficient funds in your account.

Bottom line: Take the time to assess your needs, and consider scheduling an appointment with a personal banker at your financial institution to review your options and make decisions about the best way to protect yourself from overspending on your account. This will help ensure you’re in line with your bank’s policies, charges and information, making you more successful with future budgeting.