How Does an Overdraft Affect My Bank or Credit Union Account?

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Daniel and Susan were busy getting ready to leave town for a fall weekend getaway. Each of them had a separate "to-do" list, so Susan wasn't aware that her husband decided to replace his old luggage with a new set just when she was using their debit card to buy a portable GPS unit to make their trip easier. Together, the unexpected purchases pushed their checking account over the edge.

Protection from Unintentional Overdrafts

Sometimes life throws a few financial surprises your way and overdrafts occur. Your bank or credit union's overdraft protection services are designed to save you from the inconvenience and embarrassment of finding insufficient funds in your account. Generally, banks and credit unions offer a few overdraft options:

  • Standard overdraft practices that come with your account. These may include the authorization and payment of overdrafts caused by checks or automatic bill payments. You will be charged a fee each time your bank or credit union pays an overdraft, so be sure you know these fees. Better yet, take care to balance your checking account and review your account statements to help avoid overdrafts.
  • Overdraft protection plans. Two options include: 1) having your checking account set up to transfer funds from a savings account or credit card to cover overdrafts for a fee, or 2) establishing an overdraft line of credit.

Avoid overdrafts if at all possible, but if you do want overdraft protection, contact your bank or credit union to find the most cost-effective method. Otherwise, you could end up paying an overdraft fee of $20 or more for an overdraft of a few dollars!


Change in Regulations

Overdrafts Due to Debit Card Transactions

Protection from overdrafts caused by everyday debit card transactions is handled differently from other types of overdraft protection. On Aug. 15, 2010, new regulations went into effect that require bank and credit union customers to opt in to receive overdraft protection to cover one-time debit card transactions. Debit card transactions made without sufficient funds in your account are now declined by merchants at the point-of-sale.

Remember that your bank or credit union charges a fee to cover overdrafts, so keep that in mind if you sign up for overdraft protection.