What is Overdraft Protection:
Overdraft protection is a service the bank offers to cover their customers’ overdraft. Overdraft protection is needed when the customer writes a check more than the amount stored in their account. It can also be referred to as “cash reserving checking.”
How does Overdraft Protection Work:
Overdraft protection works when you are about to overdraw your account. The bank will automatically transfer available funds from your other linked account. Only one transfer will be made from your linked account to the protected account. Overdraft protection won't be made unless it can cover at least one transaction.
To Avoid Overdraft Fee:
The best way to avoid overdraft is aways make sure you have enough money to cover this payment and all the other upcoming payments.
You can always use your bank mobile app to check your available balance 24/7.
Turn on the alert on your bank app, so you can get notification of every transaction.
Don't forget to account for the checks you've written that the bank has not received, as well as the upcoming automatic payments and transactions where the final amount might change, such as when you add a tip to a restaurant.
Pros to Get Overdraft Protection:
All your transactions will go through.
There is cash available for emergencies. You can access that when you need it in an emergency situation.
Cons to Get Overdraft Protection:
You will need to pay fees and interest.
The transactions may or may not clear up if your backup source is low or empty.
Can encourage overspending.
They can have high and unpredictable fees.
Can have higher interest than loans
Alternatives to Overdraft Protection:
Set up a line of overdraft credit.
Connect your checking accounting to a savings account.
When you link your checking account to other secondary accounts like checking, saving, and money market accounts is another way to protect you from overdrawing yourself.
Written by Anna Li