As mentioned earlier, many banks offer the option to link another bank account or credit card to a checking account to avoid overdrafts.
When your account reaches a zero balance, it either transfers money from the other bank account or charges it to the credit card. Some banks offer a line of credit that also helps customers avoid overdraft fees. You always have the option to opt out of overdraft protection services at your bank or credit union.
Doing so will avoid overdraft fees, but it could lead to bounced checks, declined payments or transactions and non-sufficient fund fees. Overdraft protections were meant as a way to help consumers and, yes, they can be quite useful.
Avoiding overdraft fees is one way to save money, but the goal should be not to incur an overdraft fee. Here are a couple of reliable ways to protect your account from overdrafts. Avoid having a low balance by keeping some extra cash in your checking account. Keeping tabs on your account is one of the best ways to prevent overdrafts. Tracking your balance allows you to double-check your account before making any purchases or paying bills. You also have the option of choosing a checking account that does not charge overdraft fees, as more banks and credit unions are offering in Kevin Payne is a personal finance and travel writer who writes about credit cards, student loans, debt, credit, and family finances.
Kevin lives in Cleveland, Ohio with his wife and four kids. She has worked as a personal finance editor, writer, and content strategist covering banking, credit cards, insurance and investing. As a small business owner and former financial advisor, Daphne has first-hand experience with the challenges individuals face in making smart financial choices. Select Region. United States. United Kingdom. Kevin Payne, Daphne Foreman. Contributor, Editor. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.
What Is Overdraft Protection? There are other negative consequences for these failed transactions, like: Merchant fees Late fees Cancellation of accounts Cancellation of coverage for insurance Having your debit card declined, or having a check or ACH payment bounce, can be embarrassing for individuals, but, more importantly, it leads to other financial consequences, too.
How Does Overdraft Protection Work? Opt-In Overdraft Protection The standard overdraft protection offered by banks is opting in for overdraft protection. Linked Bank Account Many banks allow customers to link their checking account to another bank account, such as a savings account. Credit Card Some banks allow customers to link a credit card to their checking accounts.
Credit Line Another overdraft protection option some banks provide is opening an overdraft line of credit. Overdraft Fees While not all banks charge overdraft fees, many do, and they can add up quickly. Ways to Avoid or Eliminate Overdraft Fees Overdraft fees are a nuisance and a drain on your finances, but they also are avoidable with some advance planning.
Link Another Account or Credit Line to Your Checking Account As mentioned earlier, many banks offer the option to link another bank account or credit card to a checking account to avoid overdrafts. Opt Out of Overdraft Protection Services You always have the option to opt out of overdraft protection services at your bank or credit union.
Pros and Cons of Overdraft Protection Overdraft protections were meant as a way to help consumers and, yes, they can be quite useful. Pros Transactions go through Avoid embarrassing situations Funds available in times of emergencies Avoid costly late fees and penalties Avoid bouncing checks Cons Extra fees Interest charges Encourages overspending Only a temporary solution How to Avoid Overdrafts Altogether Avoiding overdraft fees is one way to save money, but the goal should be not to incur an overdraft fee.
Keep Surplus Funds in Your Checking Account Avoid having a low balance by keeping some extra cash in your checking account. Bank consumer savings account, money market or a secondary checking account , there is no fee.
For most U. Bank credit account U. Bank Reserve Line of Credit, U. Bank credit card, U. Bank Personal Line, U. Overdraft protection lets you link accounts so you can transfer funds to your checking account if a check, debit card or ATM transaction exceeds the available balance in your account. The term standard overdraft coverage at U. Bank refers to how we will handle the transactions.
Bank may authorize and pay overdrafts for these types of transactions for a fee:. We will not authorize and pay overdrafts for these types of transactions unless you say "yes" to ATM and debit card overdraft coverage:. Each overdraft item we pay on your behalf will be subject to "Overdraft Paid Fees".
Overdraft account signers - Account holders who are signers on the checking account must also be signers on the account linked for overdraft protection. Overdraft credit products eligibility — Credit products are subject to eligibility requirements and normal credit approval and may be subject to additional charges as detailed in the account agreement. Interest will accrue on amounts advanced.
Credit products are offered through U. Bank National Association. Equal Housing Lender. Skip to main content. About us Financial education. In some cases, you can link another account to the checking account, and if your balance goes negative, funds will automatically be transferred in to cover the difference.
In other cases, the bank will process the transaction, and you will be charged fees until you deposit money to cover the difference. Either way, you may pay multiple fees for using these services. There could also be a monthly service fee and daily fees for each day your account is negative.
If a check bounces, you may have to pay a returned check fee. All these costs can add up quickly. Federal regulations require bank customers to opt in to overdraft protection programs. That means that your bank cannot automatically enroll you when you open an account. While these programs may seem like a safety net, they can result in an avalanche of fees.
Not opting in also has its costs. If you do not have overdraft protection and try to complete a transaction that you do not have funds to cover, it will usually be denied. If you are trying to take money out of an ATM, that's an inconvenience. But if you've written a check and it bounces, the bank may charge a non-sufficient funds NSF fee. In addition, the party receiving the bounced check may demand reimbursement for a returned check fee.
Overdrawing too often or keeping your balance negative for too long can have its own consequences. Your bank can close your account and report you to a debit bureau, which may make it hard for you to get approved for an account in the future.
And you'll still owe the bank your negative balance. Overdrawing your account can become extremely expensive. To avoid paying overdraft fees , the Federal Deposit Insurance Corporation FDIC recommends that you monitor your account balance regularly and link your checking and savings accounts, so a shortfall is covered through an overdraft-protection program.
This may cost money, but it is likely to be less than paying overdraft fees. Bank apps make it convenient to keep tabs on your balance, and many banks offer notifications such as text reminders when your balance is low.
If you do get hit with an overdraft or returned check fee, and it is the first time, it is worth calling your bank to ask to have it waived.
Either way, add funds back to your account to cover the difference as soon as you can, which can help prevent fees from spiraling.
Consumer Financial Protection Bureau. Federal Deposit Insurance Corporation. Checking Accounts. Credit Cards.
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