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Understanding Overdraft Protection

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.

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.

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.

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.

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.

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.

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.

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.

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.

We offer four lines of defense in the event of an overdraft:

  1. My Grace Zone is a free service available for qualified members in My Relationship Checking that opt in for Reg E. In the event of an Overdraft, Marine Credit Union will cover the charge without a fee up to $50.
  2. Overdraft Protection: To obtain this free service, link your savings account to your checking account. In the event of an overdraft, Marine Credit Union will transfer money from your savings into your checking in increments of $100 to cover the charge.
  3. Kwik Cash line of credit is a line of credit for members that apply and qualify and can be linked to your account. Funds will draw in the event of an overdraft, and you will be charged interest on the balance.
  4. Overdraft Privilege allows Marine Credit Union to pay the charge in the event of an overdraft for a fee of $35 per instance, with a maximum of six charges per day. The amount Marine Credit Union will cover is in accordance with your overdraft limits, which are based on deposit and repayment history and can fluctuate along with changes to your account or status. An overdraft can be a check or ACH that takes your account negative if you are not opted into Reg E, or it can be a check, ACH, or debit card charge that takes your account negative if you ARE opted into Reg E.

Federally insured by NCUA

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