When it comes to your personal banking, it helps to have some sort of overdraft protection on your checking account. With bank fees on the rise, bouncing a check or overdrawing your checking account using your debit card is not a very savory option. And we are all in danger from it. Whether it takes longer than expected for a deposit to clear, or whether we forgot to notate something in our personal finances computer software or ledger, at some point the checking account is likely to be overdrawn. And this is especially true for those of us who own our own businesses. With fluctuating incomes and delays to payments, we can find our personal finances drained. And, of course, anyone is capable of making a mistake as to how much is actually available in a checking account.
How overdraft protection helps
Overdraft protection on your checking account can help you protect yourself against bouncing checks and “insufficient funds” messages appearing on the grocery store terminal. Overdraft protection basically allows you to overdraw your checking account (by more than a few dollars) without consequence to payments you try to make. An overdraft of even a couple of dollars without protection can mean fees of more than $30. Overdraft protection can protect you from that fee, and it can protect you if you go overdraw your checking account by more than $50. There are two main types of overdraft protection: transfer from a savings account or a line of credit.
Savings account transfers
Some overdraft protection plans allow for the bank to automatically transfer the amount from your savings account into your checking account to cover the overdrawn amount. Because you should have a savings account regardless, you can check with your bank regarding the options. Some banks charge a fee of $5 to $10 when this happens. But that is significantly less than paying an overdraft charge.
Line of credit overdraft protection
The other type of overdraft protection is a line of credit. Basically, you automatically borrow the money from the bank to pay for the overdrawn amount. Most banks require you to fill out a credit application in order to use this particular service. And, since it is a line of credit, you will have to pay it back with interest. However, most of the time the interest is not onerous, and if you pay it back quickly, your interest charges will be minimal.
If you are worried about occasionally being close to the end of your checking account funds, looking into overdraft protection is a good idea. You should make your decision based on what your bank offers, and the amount of money you have in your savings account. Additionally, you should realize that you might be turned down for a line of credit overdraft protection, since it is seen as traditional credit. But you should be able to get some type of overdraft protection if you have shown fairly consistent financial reponsibility and if you are a good customer at the bank.