4 Reasons to Sign Up for Overdraft Protection -- Today
KEY POINTS
- Banks cannot automatically sign customers up for overdraft protection. You must specifically request it.
- Overdraft protection can save you money, embarrassment, and missed payments.
Overdraft protection means no more bounced payments.
As routine as opening a bank account may be, you're expected to make several important decisions. One has to do with the type of account you'd like to open, and another involves overdraft protection. Here, we'll tell you what overdraft protection is, how to enroll, and four ways having overdraft protection in place can make your life easier.
What is overdraft protection?
Any time there's not enough money in your checking account to cover a purchase you've made, your account is overdrawn. Let's say you write a check to your child's soccer league for $120 without realizing there's only $110 left in your account. At least two things are guaranteed to happen:
- The soccer league will not get paid.
- Your bank will charge you a fee (the national median overdraft fee is $30).
Overdraft protection is available to prevent situations like this, and signing up is easy. Whether you're opening a new account or have been with the same financial institution for years, you simply link your checking account to another one of your other accounts, like savings or a money market account.
Once you're linked, you no longer have to worry about overdrafts. That's because the bank will withdraw the funds needed to cover your check or debit card purchase from your linked account. While it's not free, it costs far less than an overdraft fee (ranging from free to about $12).
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Aside from the money you'll save, there are at least four other reasons you'll be glad you have overdraft protection.
Four reasons to sign up for overdraft protection today
1. Your payment will clear
Life is busy, and overdrafts happen. Imagine that you sit down to pay your monthly bills. You've made a math error and have less in your account than you believe. Because overdraft protection is in place, all your bills are paid. Nothing is late, and there are no late fees to pay.
2. No embarrassing returned payments
With overdraft protection, the company or person you paid will never know that your bank account was short. All they'll be aware of is that your payment hit their bank account as you promised it would.
3. Less worry
Let's face it: we all have hundreds of things to think about each day. Overdraft protection takes one concern off your plate. You can be sure your bills will be paid, even if you calculated your bank account balance wrong or forgot about an outstanding payment that hasn't cleared the bank yet.
4. Funds available in a pinch
While it is never a good idea to overdraft your bank account, there may be times when it becomes necessary. Imagine that it's a Sunday night, the banks are closed, and you've broken your arm. The emergency room won't treat your injury until you make a co-payment of $200. The problem is that you only have $150 in your checking account. Because overdraft protection is in place, you know you can make the $200 payment, even if it costs you a small fee.
A bank cannot automatically sign customers up for overdraft protection. You have to request coverage. Fortunately, that can be as easy as calling customer service or speaking with a teller the next time you're in a branch location.
One thing to keep in mind: Banks are not required to notify you if a check or debit card payment bounces due to insufficient funds. That's why keeping your eye on your balance is essential.
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