What is Overdraft Protection?

Imagine that after a long day of holiday shopping, you finally spot the toy your daughter most wants for Christmas. You pluck it off the shelf, dart around the other last-minute shoppers, and head to the cashier. However, when you swipe your debit card to pay, the scanner reads insufficient funds. Panic washes over you. Did you forget to transfer money to your checking account after your last payday? Have you spent more than you thought in the past few hours? Whatever the reason, you can't make the purchase . . . unless you signed up for overdraft protection, that is! Without delay, overdraft protection could pull you out of this financial bind. So what is overdraft protection?

What Is Overdraft Protection?

Overdraft protection is a handy service offered by banks and credit unions that allows account holders to temporarily make purchases with their debit card even though their checking account lacks the funds to finance the expenses. To cover the negative balance, funds are transferred from the account holder's linked savings account.

What are the pros and cons of overdraft protection?

Have you ever tried to make a purchase with your debit card and been denied due to insufficient funds? Overdraft protection can save you from the embarrassment of this scenario. Instead of being turned away, you could have made the purchase, paying a small fee for the service. In addition, if the purchase is important, overdraft protection could prevent an emergency situation. For example, what if you were purchasing a vital prescription? Overdraft protection would allow you to buy what you needed without delay.

However, despite the convenience, overdraft protection can also be costly and risky. After all, if you don't have the funds available, perhaps you shouldn't be making the purchase at all. Plus, overdraft protection typically comes with a fee. Although the cost is relatively minor, if you use the service often, the fees will add up.

How does overdraft protection differ from overdraft coverage?

When you use overdraft protection, your negative balance is covered by funds from the bank account you have linked to your overstrained checking account. With overdraft coverage, on the other hand, your financial institution pays the overdraft. Because of this, the transfer fee is much higher.

Should I sign up for overdraft protection?

Since 2010, banks and credit unions have been required to ask consumers to opt in to any overdraft protection services. Many account holders do so, finding that overdraft protection is beneficial and worthwhile. We recommend signing up for the service just in case. Don't rely on overdraft protection, but keep it as a safeguard.

How can I avoid using overdraft protection?

To avoid using overdraft protection, follow these simple tips:

·         Keep a close eye on your checking account. Remember that some transactions don't show up right away, so always look at your "available balance" as opposed to your "total balance."

·         Transfer funds into your checking account regularly if you often make purchases using your debit card, checks, or an auto billing service. Give yourself some leeway as well, so that you aren't constantly risking an overdraft.

·         If you're planning to make a very large purchase or you haven't reviewed your account in a while, use online banking to quickly check your account balance on your phone.

·         If you aren't sure whether you have enough money in your checking account for a purchase, use cash or a credit card instead.

At BluCurrent Credit Union, we offer overdraft protection on loans, the ability to link checking and savings accounts with free overdraft protection, and an unsecured line of credit loan to meet your overdraft protection needs. So if you're in the market for a credit union in southwest Missouri, check out BluCurrent. With our unbeatable loan options, 6,800 shared branches across the country, and fantastic customer service, we might be the perfect financial service for you. To learn more about our services and benefits, please stop by one of our branches or explore our website.