Released: October 17, 2018

Help Desk FAQ

How does checking account overdraft protection work, and what if I don’t want it?

Overdraft protection means your financial institution will honor your check or process your ATM or debit transaction even if you don’t have enough money in your account to cover it. The benefits to you are:

• You’re allowed to complete your transaction.
• If you’re using a check, you will not be assessed a bounced check fee by the merchant.
• A bounced-check notation will not appear on your check-writing history report (ChexSystems or TeleCheck).

Overdraft protection on checks and scheduled recurring monthly payments is automatic—you have to opt out if you don’t want it. If you want overdraft coverage on your debit card purchases and ATM withdrawals, you must opt in. Otherwise, ATM and debit transactions that would exceed the balance in your checking account will be declined.

Your particular bank may choose not to offer the option for overdraft coverage on debit card transactions at all; it may simply decline the transaction if the money is not in your account. Or it may allow the overdraft transaction without charging a fee. Check with your bank or credit union to find out exactly what its programs and policies are regarding overdraft protection.

The drawback to overdraft coverage is the cost. The fees are high and you can get hit with them more than once, depending on how many transactions are processed before you deposit the required funds into your account. While some banks link your checking account to a savings account and then charge a fee to transfer money to cover overdrafts, some banks charge the overdraft to a credit line or a credit card you have linked to your checking account. So, in addition to the fee, you will pay interest on overdrafts you do not pay off.

If you are asked whether you want to opt in to overdraft coverage, consider other less expensive ways to protect yourself:

• Link your checking account to a savings account from which you can transfer money when funds get low. If the bank makes the transfer to cover an overdraft, there may be a fee.
• Keep tabs on your checking account balance through “low balance” alerts, if your bank offers them.
• Use a credit card for emergency purchases if you don’t have enough money in your checking account

Learn more about overdraft protection plans in Consumer Action's publication The Right Overdraft Protection Plan, available for free download in English, Spanish, Chinese, Vietnamese and Korean.