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Join Chris Cucci, CCIM, SVP Chief of Staff at Climate First Bank as he gives us the low down on overdraft protection.
Overdraft protection is a service offered by many banks and credit unions where the bank agrees to pay items that exceed the available balance on a checking account. In some cases, there is a fee for overdraft protection services, however it is almost always much lower than the cost of actual overdraft fees.
Overdraft protection most often comes in two forms – overdraft transfer or an overdraft line of credit. Overdraft transfer is an arrangement where your bank will automatically transfer funds from another bank account such as a savings or money market, to cover your checking account in the event of an overdraft. An overdraft line of credit is a special line of credit that is connected to your checking account to cover overdrafts. This line of credit has an interest rate just like any other credit product, so you save money on interest expenses by paying the outstanding balance off sooner rather than later.
One obvious alternative to overdraft protection is keeping good track of your checking account balance. If you see your balance running low, you can avoid over drafting by either manually transferring funds from another account via online banking for example or you can simply avoid using that checking account until you’re able to make a deposit to increase your balance.
Another popular alternative to overdraft protection is using a credit card. Many consumers take advantage of credit card reward programs and put their recurring payments and other daily expenses on the credit card each month, then pay the balance down in full when their statement arrives. By using a credit card for these expenses, they reduce the risk of over drafting their checking account and they can earn reward points based on their spending.
At Climate First Bank we offer overdraft transfer and overdraft line of credit options. Like all our other products and services, customers can easily apply online, in person at one of our branches, or by calling us via phone.
Exceeding your overdraft protection limit can put a customer at risk of being charged costly overdraft fees or with a purchase being declined at the point of sale.
Overdraft protection can typically be turned off at any time by contacting your bank. The time it takes from request to turn off may vary depending on the bank.
In the case of overdraft lines of credit, consumers should inquire with their bank to determine whether they report payment history on the overdraft line of credit to the credit bureaus. If they do, then the repayment history on that line of credit could either positively or adversely affect your credit score based on repayment history just like any other credit product.
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