What Is Overdraft Protection?


If you’ve ever had a transaction declined while in public, you know how mortifying that can be.  Adding overdraft protection to your account might help you avoid embarrassment or give you the added sense of security in case your account runs short. Instead of your transaction being denied due to lack of funds, your bank will cover the cost. However, although this might sound ideal, long-term you could end up paying a slew of costly fees. 

What Does Overdraft Protection Mean?

Overdraft protection is when your bank covers the cost of a transaction when your account goes below zero. These transactions could be from a withdrawal, check, ACH payment or wire. In most cases, in exchange for covering your transaction, your bank charges you a fee or interest. Fees vary depending on your type of account and overdraft protection plan.

Below are a few different types overdraft protection plans offered:

  • Linking Another Account – Link a credit card or another account held at the same bank (like a savings).  When your account is overdrawn, you can transfer funds from either account. Some banks offer no fees if your account is brought current within 24 hours. This could depend on the transaction type, linked account, or how long your account has been overdrawn. 
  • Line of Credit –  Ask your bank if they have an overdraft line of credit program. This is basically a loan from your bank that is attached to your account. If you are approved, any funds you borrow to cover overdrafts incur interest. Although cheaper than the average $34 NSF fee (per transaction), a transfer fee may be applied. Just like credit cards, use wisely or you could put yourself into major debt. Also, be cautious of annual fees. 
  • Standard Protection Opt-In –  When most people hear overdraft protection, they think of this. As stated above, this is when your financial institution covers a transaction you’d otherwise be denied due to insufficient funds. Unless there’s a limit specified, this could happen multiple times a day and each time you could be charged a fee. You could easily be charged over $100 in fees for 3 overdraft transactions.

Overdraft Protection Fee

Most people get overdraft protection thinking that it’ll prevent them from acquiring NSF fees.  Charging a fee to prevent a fee seems a bit counterproductive. That’s because it is. 

According to the Consumer Financial Protection Bureau, the median overdraft fee is $34 per transaction. Over 200 billion dollars is made in bank and credit card fees each year, and prior to July 2010 and banks could automatically opt you in for overdraft protection.  

What Are NSF Fees?

NSF (Non- Sufficient Funds) is when a merchant requests payment and the transaction is declined because you don’t have enough funds in your account. Overdraft fees are applied when the bank accepts payment even if it overdraws your account. Although they are different, usually they both incur fees. Although, banks don’t typically charge NSF fees for declined debit card transactions.  

Can I Get an Overdraft Fee Refund?

Yes, you could qualify for an overdraft fee refund. Although, you should expect to spend a bit of time calling your bank to get charges reversed. Don’t have time to make calls? Let Cushion do the dirty work for you. With over $3 million in bank fees refunded, Cushion’s negotiating technology gets more money back into your pockets.

Can You Withdraw Money with Overdraft Protection?

Yes, some banks still allow you to withdraw money even if your account is negative.  Same goes with ACH payments, even if you opted out of overdraft protection, your transaction could still go through. Make it a habit to check your bank statements and activity daily.

Alternatives to Overdraft Protection

The most important tool to avoid unnecessary fees is sticking to a budget. Don’t spend more than you can afford and set bank alerts for when your account is overdrafted. If you find yourself struggling to keep your account positive, look for affordable borrowing alternatives like Instacash from MoneyLion.

Is your account getting low? Request some Instacash right from the MoneyLion app. Instacash is an interest-free cash advance that lets you access funds from your paycheck without a credit check. You’ve earned it, why not get paid when you need it!

Download the MoneyLion app, set up an account with your email, link your checking account to apply for Instacash, and get cash today! 

Avoiding Overdraft Fees

Overdraft protection can be a slippery slope of debt when used irresponsibly. In other words, paying a fee to avoid a fee isn’t sustainable long term.  

You can avoid fees by budgeting and staying on top of your finances, but we’re all human and things happen! Choose a bank that never charges overdraft, NSF, or any other hidden fees associated with big name banks. 

At MoneyLion, we believe you shouldn’t have to pay a few when funds are already low. Check out which fees you can avoid when banking with our RoarMoney account. We only charge a simple $1 a month fee to provide premium banking and protect you from hidden fees and surprises. 

  • Zero minimum balance fees
  • Zero standard transfer fees
  • Zero foreign transaction fees
  • Zero standard mobile check deposit
  • Zero stop payment fees
  • Zero stolen card fees
  • Zero standard replacement card fees

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