What Is Overdraft Protection? Overview and Example

By Rachel Warren – Updated Sep 13, 2025 at 10:57 PM EST | Fact-checked by Robin Hartill, CFP

Key Points

Overdraft protection helps you avoid having transactions declined, even if your balance is low.
Different banks offer various types of fee-based overdraft protection.
Using overdraft protection sparingly can prevent costly fees and debt.
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If you're making a purchase but your checking account balance is lower than the transaction amount, overdraft protection can ensure the transaction goes through. Overdraft protection can prevent the embarrassment and inconvenience of a declined card.

However, you may be unaware of the exact details of overdraft protection, how it works, and how to leverage its benefits without risking unnecessary fees or falling into irresponsible financial territory. Here's what you should know about overdraft protection.

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Person holding a banking card and smartphone in their hands while standing at an ATM. — Image source: Getty Images.

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The bottom line

Deciding whether to opt in for overdraft protection really depends on your individual financial habits and needs. If you occasionally make mistakes in managing your balance or want an extra layer of security against bounced checks or declined transactions, you may want to opt for overdraft protection on your accounts.

On the other hand, if you consistently maintain a healthy balance and closely monitor your accounts, opting out might make sense for you. Aim to budget and manage your spending carefully, as this is the most effective way to avoid overdrafts and the associated costs, with or without overdraft protection.

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About the Author

Rachel Warren is a contributing Motley Fool stock market analyst covering pharmaceuticals, biotechnology, medical devices, information technology, and consumer goods. Prior to The Motley Fool, Rachel was a paralegal and legal administrator. She holds a bachelor’s degree in paralegal studies from Liberty University School of Law.

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