Introduction
To guarantee that you won’t ever be turned down for a debit transaction or ATM withdrawal, you might want to sign up for overdraft protection. If you ever spend more than what is in your account, it can be a useful service, but it usually has a price.
Your choice to sign up for overdraft protection is final. You can use the information below to decide if it’s the correct choice for you.
What is overdraft protection?
Your bank offers overdraft protection as a service to make sure that your transactions are covered even if there are not enough funds in your checking account. The bank will immediately transfer any available funds from another connected account that you have access to to the overdrawn account.
You might be charged by the bank for this service, but the cost is typically far lower than paying an overdraft fee. According to Bankrate’s 2021 checking account study, the average overdraft cost per transaction is $33.58.
You might be able to link to a line of credit in addition to a savings account to cover gaps in your checking account. Another choice is to attach your credit card, in which case a cash advance will be started in order to keep your checking account from going overdrawn.
You could have to pay a transfer charge in addition to interest on the borrowed amount if you choose either the line of credit or credit card option.
Banks have different overdraft protection procedures, including whether or not there is a cost. To determine if overdraft protection is appropriate for you, ask your financial institution to provide more information.
The benefits of having overdraft protection
Some advantages of overdraft protection include:
When you’re in a rush, like at a gas station or drive-through, your transaction will still clear even if you don’t have enough money in your bank account. It might also spare you from shame.
Overdraft protection transfers are not always charged a cost by checking accounts. However, when they do, the price is typically much lower than incurring an overdraft fee.
You might be able to avoid paying merchants’ returned check fees if it enables checks to clear.
In an emergency, it can give access to money.
The cons of overdraft protection
Overdraft protection has some additional disadvantages, including:
Whatever your bank charges in fees, you must pay it.
Some banks charge a cost for each transfer of overdraft protection, which might lead to many fees in one day.
If your connected savings account is insufficiently funded, transactions may be rejected.
Anyone who is unaware of the significant expenses involved may be encouraged to spend excessively.
Should you opt into overdraft protection?
It is ultimately up to you whether or not to select overdraft protection. If you occasionally overdraw your account, it might be a good approach for you to make transactions more understandable.
It safeguards those who fear experiencing the humiliating predicament of having their credit card denied. Additionally, it is less expensive than overdraft fees, which can mount up quickly before you know your account has gone overdrawn. Imagine being charged for each swipe; a $4 morning latte has now increased to almost $40. Continuing, your $10 lunch has almost doubled to $45.
Other ways to avoid overdraft fees
Although overdraft protection offers advantages and can be practical, there is a chance that associated costs will mount quickly.
Avoiding overdraft fees can be accomplished by choosing not to enroll in the plan. If you don’t have enough money, your bank will simply reject the debit card transaction. If the inconvenience or shame is less severe for you than paying an overdraft fee, it’s a strategy to avoid paying a fine.
A different choice is to change banks. To make their programs better suited to consumers, some banks and credit unions have changed how they are organized. Some accounts even permit fee-free overdrafts up to a certain amount.
Last but not least, it’s never been simpler to keep track of your bank account. You can track your expenditure by downloading budgeting applications. When your account falls below a predetermined threshold, you can also set up text or email alerts from your bank. Many banks provide numerous warnings. You may, for instance, set up one for when your balance falls below $75 and another for $25.
Conclusion
In order to avoid having to pay a higher overdraft fee, overdraft protection might be a useful and practical tool. Nevertheless, it relies on your tastes if you ought to participate. To make your own decision, take into account your individual spending and budgeting habits and balance the advantages of ease with any potential costs.