What is overdraft protection?
Overdraft protection can help safeguard you against overdrafts, which occur when you do not have enough money available in your checking account to cover a transaction, such as a check or debit card transaction. Overdrafts can result in fees, and also having your transactions, such as debit card purchases, declined.
Overdraft options vary by bank, but you typically have several options to choose from. These include:
- Courtesy Overdraft Protection: When you open a checking account at most banks, you will have the option of opting in or out of Courtesy Overdraft Option for ATM and everyday debit card transactions.
- If you opt-in, your bank may, at their discretion, authorize and pay transactions made against your account and, even if your account has non-sufficient funds. If this occurs, you will likely be charged an overdraft fee, which can range from $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. There is no charge to opt-in to Courtesy Overdraft Protection.
- If you opt-out, your ATM and everyday debit card transactions will be declined if sufficient funds are not available in your account at the time of the transaction. In most cases, depending on your financial institution, you will incur a non-sufficient funds (NSF) fee when you overdraw your account.
- Overdraft Protection: most financial institutions offer customers additional overdraft protection services. These can include:
- Link to Savings Account. If you have a savings account at the same bank as your checking account, some banks will allow you to link your savings to your checking. If you overdraw your checking account, funds can be automatically transferred from savings to possibly cover the overdraft. Depending on the financial institution, there might be fees associated with transferring funds from savings to checking.
- Overdraft Protection Line of Credit. Another option offered by many banks, including BBVA, is an overdraft protection line of credit. In this scenario, if a customer applies and is approved for a line of credit, funds from this line can be transferred to the customer's checking account to help cover overdrafts as necessary.
- There is a credit limit for most lines, which means you can only borrow up to a certain amount to help 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 help cover an overdraft.
Which overdraft protection is right for me?
Courtesy overdraft protection may be the best option if you do not have a savings account or you cannot qualify for an overdraft protection line of credit. This option typically has higher fees than either a link to savings account or line of credit. However, it can still prevent, at the bank’s discretion help to keep you from having checks returned to merchants and potentially paying additional returned check fees imposed by the merchant.
If you have a savings account or are able to qualify for a line of credit, these two options offer the least expensive protection. There are typically fees for transferring money from the savings account or utilizing the line of credit, but they are much smaller than courtesy overdraft fees.
For example, at BBVA, you’ll pay $12 ($7 in CA) per day to have funds transferred from savings to checking, or use of your line of credit. This is a per-day fee, not a per-item fee.
Whereas with Courtesy Overdraft Protection, BBVA charges $38 ($32 in CA) per overdraft, up to six per day.
Linking a savings account to your checking account may be the best option, however, because even though you will save on fees when you utilize a line of credit, you will be charged interest on the amount you borrow if you cannot pay it off within the statement cycle. This is not the case with savings-account linked overdraft protection.
How do I get overdraft protection?
To link a savings account or apply for a line of credit you will need to contact your bank. In some cases, such as at BBVA, you can opt in or opt out of Courtesy Overdraft Protection online.