What is an overdraft?
An overdraft occurs when you don’t have enough money in your checking account to cover a transaction. This results in your account being “overdrawn.” Overdrawing your checking account can result in costly fees.
What happens if you overdraw your checking account?
When you overdraft your account, your bank can either pay the transaction or refuse to pay it, depending on several factors:
- Courtesy Overdraft Option: When you open a checking account at most banks, you will have the option of opting-in or out of Courtesy Overdraft Option.
- If you opt in, your bank will, at their discretion, pay the transaction and charge you a fee, which can range $30 to $50, depending on your financial institution. How much your bank charges is included in the account agreement you receive when you open your account.
- If you opt out, your transactions, including point of purchase (swipe) transactions, bill payments, and ATM withdrawals will be declined. In most cases, depending on your financial institution, you will incur a fee when you overdraw your account. What’s more, if a check “bounces” and is returned to the person or company you wrote the check to, they could also charge you a fee.
- Overdraft Protection: Most financial institutions offer customers additional overdraft protection services. These can include linking your savings account to your checking account. If you overdraw your checking account, funds can be automatically transferred from savings to cover the overdraft. Depending on the financial institution, there might be fees associated with transferring funds from savings to checking.
- Overdraft Line of Credit: Another option offered by many banks, including BBVA, is an overdraft line of credit. In this scenario, a customer applies for and receives a line of credit, and funds from this line can be transferred to the customer’s checking account to cover overdrafts as necessary. There is a credit limit for most lines, which means you can only borrow up to a certain amount to cover overdrafts, and interest is charged on any balance unpaid by the end of each statement cycle. What’s more, there can be fees associated with transferring money from the credit line to a checking account to cover an overdraft.
Will an overdraft hurt my credit score?
An overdraft will not hurt your credit score if you promptly pay any overdraft fees and cover the transaction that caused the overdraft. If you do not make payment to the merchant or payee, or fail to pay your overdraft fees to your financial institution, you can be referred to collections, which would damage your credit score.
How much can I overdraft?
This varies based on your financial institution, but at BBVA, if you opt-in to our Courtesy Overdraft Option, you may overdraft and be charged an NSF fee per overdraft, up to six per day.
With other overdraft protection services, the number of allowable paid overdrafts per day is up to the bank’s discretion.