What Is Overdraft Protection And Is It Good For A Checking Account?
Posted on: 29 July 2015
When you open a checking account, one of the questions the bank may ask you is if you would like to enroll in overdraft protection. If you've never had a checking account before or never heard of overdraft protection, you may want to learn more about this feature before you agree to it or decline it. Here are three things you should understand about overdrawing your account and the way overdraft protection works.
What Does It Mean To Be Overdrawn?
A checking account is something you can use to deposit money and make payments or purchases. When you put money in the account, you are free to use all of the money to pay for things. You can do this by writing a check or using a debit card tied to the account. If you spend more money than the amount in the account, your bank account will be considered overdrawn.
If this happens to your account, the bank may do several things, including:
- Charge you a fee – When you spend more than the amount you have, you will have to tap into the bank's money. Because of this, the bank will charge you an overdraft fee. This fee could be around $35, and you could get charged the fee multiple times if you made more than one purchase that resulted in overdrawing the account.
- Return the checks – If you wrote a check that caused your account to overdraw when it cleared, the bank could return the check. This means that the bank would not pay the person the check was to, and you would then be responsible for paying the person you wrote the check to.
- Decline debit transactions – In addition, the bank could also put a stop to your debit card until your account is in good standing. If this happens and you try to use it, the transactions will be declined.
Being overdrawn is never a good thing. It is costly and can cause big problems. If you find that your account is overdrawn, you will need to immediately make a deposit to cover the balance you owe. Failing to do this could result in additional fees.
How Does Overdraft Protection Work?
Mistakes happen with checking accounts, though, and banks realize this, which is why most banks offer a feature called overdraft protection. Overdraft protection is something that offers two key benefits to you as the customer:
- The bank will not return checks if they bounce – You will not have to ever worry about the bank returning a check if your account does not have sufficient funds.
- The bank will not cut off your debit card privileges – In addition, the bank will allow your debit transactions to go through, even if you do not have enough money in your account.
While banks are not trying to encourage checking account holders to be irresponsible with their accounts, they are simply trying to make it easier if mistakes happen. When you have overdraft protection on your account, the bank will pay all the transactions for you; however, they will charge you fees when this happens.
What Are The Pros And Cons?
For some people, overdraft protection is a wonderful thing. For others, it is not the best option in the world. Overdraft protection is best for people that are typically responsible with their accounts, but it may not be so good for people that are constantly overdrawing their accounts.
One of the benefits this feature offers is that it still allows you to use your debit card when your account is in the negative. Suppose you were almost out of gas in your car and had no money with you. If all you had was your debit card, you could use it even if there was not enough money in your account to cover the transaction.
The downside is that this feature may cause people to overdraw their accounts unintentionally. For some people, they would prefer to have the debit card transactions declined if there is not enough money, simply to avoid problems with the account.
If you currently do not have overdraft protection, you may be able to get it. Talk to the bank where you have your checking account, and they will tell you if this feature is available. Check out sites like https://www.titansbanking.com/ for more information.
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