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Things to Know About Overdraft Protection

If you’re considering overdraft protection for your checking account, be sure to know your options, so you can take the best steps toward avoiding potential fees related to spending more money than is actually in your account.

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 is 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.

The beauty of overdraft protection is, when you initiate a debit card or ATM transaction and you don’t have enough money to cover the cost, the transaction will be turned down and you won’t be charged any fee. (However, it’s important to note that, 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 either transfer money on your own to prevent a shortfall.

To that end, you’ll also know when not to spend money on something 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.

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