Overdraft Protection: Pros and Cons

Checks and other debit transactions clear when you sign up for overdraft protection, even if your account lacks sufficient funds. In exchange for this service, your bank may charge hefty overdraft fees. Here is a look at the pros and cons.

• Pro: Your transaction will happen
• Con: You will pay fees and interest
• Con: Transactions may not clear if your backup source is low or empty

For a more detailed explanation, check out this article.

Without overdraft protection, your bank can still charge a non-sufficient funds (NSF) fee that can be comparable to an overdraft fee if there isn’t enough money in your account to cover the debit. In addition, the party receiving the bad check can demand reimbursement for the returned check fee and report you to ChexSystems, which is like a credit report for your banking history.

While it may be worth opting in if you don’t want transactions to be declined, a better choice is to sign up for email or text alerts to flag low checking account balances, so you can avoid overdraft fees altogether. These alerts will give you an opportunity to add funds to your checking account, wait to make a purchase, or use an alternate form of payment.

You can also avoid overdraft charges with some banks’ free overdraft transfer services, which will automatically transfer money in preset increments (such as $100) from a linked savings account into your checking account when the balance is low.