Suppose you have $90 in your checking account. You purchase $100 worth of groceries using your debit card. Your bank approves the transaction – but your balance is now -$40 instead of -$10.
What happened? An overdraft fee. When you opened your checking account, you consented to your bank charging you a fee (usually around $35) whenever you withdraw more money than you have saved. If you hadn’t opted in, then your bank would not have approved the overdraft in the first place.
People are often taken off guard by overdraft fees. According to the Consumer Financial Protection Bureau, 43% of consumers were surprised by their most recent account overdraft. That surprise only becomes worse when the overdraft fee is accompanied by a non-sufficient fund (NSF) fee, which is more often than not the case. A bank may issue these fees on multiple separate occasions: one for each overdraft. T
Overdraft Protection Stops Overdraft Fees
You don’t like paying fees. Fortunately, there’s a way to protect yourself against overdraft fees. Appropriately enough, it’s called overdraft protection.
When you opt for overdraft protection, you can still make purchases that your checking account cannot cover. The bank will simply use a separate linked deposit account, such as a savings account or different checking account, to cover the costs. Alternatively, the bank may transfer the funds from a specialized overdraft line of credit. In either of these cases, the funding works just like a cash advance that you would be required to pay financial charge on.
You may still be required to pay a fee when overdraft protection takes effect. Some banks charge a single-digit percentage of the transfer amount. Some charge a flat fee for each overdraft ($12 is normal). Others provide overdraft protection free of charge. But in nearly all circumstances, an overdraft protection fee is significantly less than an overdraft fee.
Do You Need Overdraft Protection?
If your checking account already contains more money than you have any intention of spending during a single month, then overdraft protection probably isn’t necessary. But if your current savings and spending needs put you at significant risk of overdrafting multiple times in one month, then overdraft protection can save you a sizable amount of money on fees.
Would you like to learn more about how you can avoid paying overdraft fees? Then we welcome you to contact Sherburne State Bank, or visit any of our locations in Becker, Monticello or Princeton, MN today. We’re dedicated to helping our clients spend with confidence, and avoid paying fees as much as possible!
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