What Is Overdraft Protection?

What is overdraft protection? Overdraft protection offers a safety net that keeps your checking account balance from going below zero. As a consumer, you should know that an overabundance of bounced checks...

As a consumer, you should know that an overabundance of bounced checks might affect your credit rating with banking institutions and quite possibly your credit report. The best way to guard yourself is by getting overdraft protection from your bank.


Overdraft protection offers a safety net that keeps your checking account balance from going below zero. You can ask for this protection at anytime, and if you have a good relationship with your bank, they may offer the service to you.

Steve Twirago, personal banker with Chase Bank, offers an explanation of how overdraft protection works: "It can work in a couple different ways; one would be a savings account, where it would sweep enough money out of that account to keep your checking from dipping below zero."

Twirago goes on to say, "Another way would be a credit card that can be used as overdraft protection. It shows up on your credit card statement at the end of the month as if you had made a purchase. A third option is for people with a home equity line of credit, they can use that."

This protection can be valuable to you as a consumer because it protects your account and saves you from paying high fees for insufficient funds.




"You do not pay a fee but you may pay a small service charge for the bank's trouble (depending on the bank). This charge will be way less than the overdraft fee," explains Twirago.

Overdraft protection is available to almost anyone but there are certain conditions that may apply and these conditions will vary bank to bank.

"Anybody can get it with their savings account (at Chase), but with a credit card you have to be approved," says Twirago.

These conditions may apply at your bank as well and your bank should go over it in detail with you when you apply for the protection. Ask your bank what the service charge may be if overdraft protection is used.

If you have overdraft protection, it will automatically take care of any account overdrafts for you in most cases, but there are exceptions.

"If you don't have enough in savings or if you max out your credit card, it won't work," says Twirago. If this happens you will be charged a fee for insufficient funds and the check may or may not be honored. This fee can range from $25.00 to $35.00, depending on your bank.

If you are using your savings account for overdraft protection, it is important for you to maintain a high enough balance so you don't have to deposit money on a regular basis.

"Sometimes, if you make too many withdrawals from your savings account in a month, and on a regular basis, the bank eventually will change it to a checking account, which then cannot be used as overdraft protection," explains Twirago.

A poor credit rating can impact on your life for years, but with overdraft protection, you are creating a safety net which means bounced checks are a thing of the past.

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