Overdraft protection is a service provided by banks or financial institutions that helps prevent the rejection of charges to a bank account that are in excess of the available funds in the account. When a customer signs up for overdraft protection, they designate a backup account for the bank to use as the source to cover any overdrafts, usually a linked savings account, credit card, or line of credit. Overdraft protection is generally limited to a preset maximum amount and typically involves a fee.
Overdraft protection can be a helpful tool to avoid declined transactions or overdraft fees by automatically transferring funds from a linked account to the checking account. However, banks charge customers for this service in a few ways, such as overdraft fees to process any transactions that overdraw the account. The price for overdraft protection is usually considerably less than paying an overdraft fee.
It is important to note that banks are not required to offer any overdraft protection programs, and even when they do, they may retain discretion to pay or not pay a particular overdraft transaction. Customers should review their deposit account agreement and check with their bank to find out the terms and conditions of any overdraft protection programs that it may offer. Ultimately, whether or not to choose overdraft protection depends on individual preferences and spending habits.
