What do you need to know about courtesy overdraft-protection, or bounce coverage, plans?
Avoid using these plans as short-term loans--they are costly forms of credit.
If you overdraw your account, get money back into your account as soon as possible. Remember that you need to put enough money back into your account to cover both the amount of your overdraft and any bank fees.
Even if you have one of these plans, there is no guarantee that your bank will cover your checks, ATM withdrawals, and debit card and other electronic transactions that overdraw your account.
Good account management is the lowest-cost way to protect your hard-earned money. If you need overdraft protection every now and then, ask your bank about the choices and services that are right for you.
Banks, savings and loans, and credit unions may provide other ways of covering overdrafts that may be less expensive. Ask your bank about these options before making your choice. You may be able to:
Link your checking account to a savings account you have with the bank. If you overdraw your checking account, the bank can transfer funds from your savings account to your checking account. Ask your bank about transfer fees.
Set up an overdraft line of credit with the bank. You need to apply for a "line of credit" just as you would apply for a regular loan. If you overdraw your account, the bank will lend you the funds by using your line of credit to cover the overdraft. You will pay interest on this loan, and there may be an annual fee. But the overall costs may be less than the costs for courtesy overdraft-protection plans.
Link your account to a credit card you have with the bank. If you link your account to a credit card, any overdraft amount becomes a cash advance on your credit card. You will probably be charged a cash-advance fee, and interest charges on the advance will start immediately. The cost of this option depends on the interest rate on your credit card and how long you take to pay back the advance.
The choice is yours. Consider these ways to cover your overdrafts:
|Ways to cover your overdrafts||Example of possible cost for each overdraft*|
|Good account management||$0|
|Link to savings account||$5 transfer fee|
|Overdraft line of credit||$15 annual fee + 12% APR|
|Link to cash advance on credit card||$3 cash-advance fee + 18% APR|
|Courtesy overdraft-protection plan||$20 to $30|
|Bounced check||$40 to $60 ($20 to $30 bank fee +|
$20 to $30 merchant fee)