Understanding Overdraft Protection: Minimize Fees, Maximize Savings

February 7, 2023 | 5 Min. Read

Sometimes, despite your best efforts (or intentions!) to stick to a budget, you might find your checking account a little short. Maybe you ran into an unexpected expense or lost track of a payment due date. Or maybe you spent a little more than planned for a special occasion. We get it because it happens to all of us.

But what do you do when your expenses exceed your budget, and you incur an overdraft fee? How can you prevent overdrafts from happening too often? And how do you find the best checking account to meet your needs?

Here, we’ll cover what you need to know about overdraft fees and overdraft protection services and offer some tips for reducing and preventing overdraft fees in the future.

Overdraft fees: What you should know

An overdraft fee occurs when you make a purchase that exceeds the balance in your checking account. When you don’t have enough money in your account to cover the transaction, your bank or credit union covers the shortage so the transaction can be completed. You’re then charged a fee for that service.

The cost of an overdraft fee varies by bank, but the average overdraft fee is around $30 per transaction. These fees can add up fast and sometimes create costly consequences. That’s why it’s so important to keep a close eye on your account and carefully manage your budget.

Overdraft protection: What is it, and do you need it?

Many banks and credit unions offer options to help if you overdraw your account, like enrolling in overdraft protection. Overdraft protection is a service that allows the bank to make an automatic transfer from another account—like your savings account—if your checking balance becomes negative. While it’s still important to monitor your account daily, overdraft protection can help you manage fees and keep your account in good standing.

How do you know if you should enroll in overdraft protection? There are a few reasons why you may want to consider this service:

  1. You have overdrawn your account in the past, and it may happen in the future.

  2. You want to prevent the inconvenience of declined transactions.

  3. You want to protect yourself from other fees that may be more expensive, such as:
    • Non-sufficient funds fees: A non-sufficient funds (NSF) fee can occur when your checking account reaches a negative balance, and you are not enrolled in overdraft protection. In this case, the transaction “bounces” or is declined. An NSF fee can cost as much as $50.
    • Late payment fees: A late payment fee can occur when you have automatic payments set up from your checking account and your balance is insufficient to cover a payment that comes due. In this case, the payee may charge you a late fee for failure to make your payment on the due date.

  4. You want to stay away from other short-term credit options, like payday loans.

Overdraft protection can be a helpful service to have just in case you ever need to spend more than the balance in your account. However, it’s important to remember that it comes with a cost and—just like other banking fees—overdraft fees can add up quickly.

How to prevent overdraft fees

We all know how hard it can be to manage our budgets. If you want to make sure overdraft fees don’t get out of control, it pays to know how to prevent and manage them.

Keep a close eye on your account balance.

With all the digital tools we have now, the days of balancing your checkbook may be long gone. But that doesn’t mean you shouldn’t track your account balance, transactions, and payments. Keeping an eye on your account and always knowing your balance can help you avoid overdraft fees.

Use direct deposit.

When you use direct deposit, your paycheck lands in your account no matter where you are—no trip to the bank required! This makes getting paid quicker and easier, and having immediate access to your funds can help prevent overdrafts.

Create a balance buffer.

For added insurance, keep a little extra money in your checking account. Decide on a certain amount that will always be in your account and make a commitment not to dip into it. When you look at your account balance, automatically subtract that amount and budget to that figure.

Enroll in overdraft protection.

When you choose to enroll in overdraft protection, your checking account will be linked to another account, like your savings. If you overdraw your checking, funds will be drawn from the other account to cover the transaction. The fee you incur for overdraft protection may cost less than non-sufficient funds or late payment fees.

Get checking that’s fair and flexible.

Some banks and credit unions offer checking accounts with added flexibility to help you better manage overdrafts. At Marine Credit Union, you can enroll in CoverIt, an overdraft program that gives you a $50 grace zone each month, so you have a safety net for life’s ups and downs.

Learn more about CoverIt

With Marine Credit Union’s exclusive CoverIt program, we’ve got your back. CoverIt gives you a safety net so you can use your money with less worry and breathe easier when your balance gets tight.

Enrolling in CoverIt allows you unlimited access to a $50 grace zone for a small monthly subscription fee. Plus, you’ll get a $5 safe spending rebate if you don’t use the grace zone during the month. There’s no contract, and you can cancel at any time.

Add flexibility to your checking account. Learn more about CoverIt.

Open a Checking Account with Marine Credit Union

When you open a Marine Credit Union Checking Account, you open new possibilities. We can help you reach your financial goals, even if you’ve been turned down elsewhere.

Federally insured by NCUA

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