Making Cents Blog

How to Use Overdraft Protection to Your Advantage

The Reason for Overdraft Protection

Overdraft protection enables your credit union or bank to pay things that need to be paid when you don’t have sufficient funds in your checking account. Maybe you forgot to deposit a check. Maybe a quarterly insurance payment was set up for auto pay and showed up unexpectedly. Whatever the reason for your shortfall, the credit union or bank will keep you standing in good stead.

How Overdraft Protection Can Become a Problem

There’s only one problem with overdraft protection. It can be costly. For example—let’s say your overdraft protection is linked to your credit card and the bank issues a cash advance to cover your overdraft (or a nonsufficient fund item / NSF) and charges it to your credit card. You then end up 1) paying a cash advance fee of 2 to 3 percent, and 2) paying the fee the bank charges for the transaction, and 3) paying whatever interest you incur before you pay the cash advance back.

Fees for insufficient funds can range from $20 to $40. And when one check or a debit transaction bounces, you can expect at least one or two more transactions to bounce before the red lights start flashing or a merchant tells you that you’ve been declined. In less than a day, you can chalk up $100 or more in bounced check fees. In addition to overdraft fees, many banks charge $2 to $10 per day until you pay off the overdraft account balance.

Take Personal Responsibility for What You Spend and Owe

Please note—first and foremost—there’s just no need to go through this costly scenario if you take a little extra time to personally and diligently manage your checking account. Record checks, ATM withdrawals, automatic debits, and bank fees in your check register immediately. Don’t rely on what the bank shows as your balance since you may have written checks that haven’t reached the bank yet, or you may have forgotten to record an automatic debit.

The Alliance Credit Union Courtesy Covered Program

Alliance Credit Union features a Courtesy Covered Program. Rather than returning unpaid, non-sufficient funds (NSF) items which could incur a fee from the payee, Alliance pays NSF items up to $700 during a 30-day period. You incur an NSF/overdraft fee of $29 for each transaction that Alliance pays when you have insufficient funds to cover the transaction. (You are, however, notified each time Alliance pays a NSF item.) As long as you bring your account current within each 30 day period, this benefit continues uninterrupted. This is true for all automatic bill payments (ACH) and check transactions. If you also want Courtesy Covered for ATM and debit card transactions, simply fill out and submit a secure online form.

Linking Overdraft Protection to Your Savings Account Makes Good Sense

Your best option at Alliance is to link an overdraft protection plan to a savings account or a line of credit. This may, in fact, be less expensive than many standard overdraft practices. (You have the option to link your Alliance checking account to your Regular Share or High Yield Money Market account.) If you do not have sufficient funds in your checking account at the time of a transaction, funds from your savings or money market account will be transferred into your checking in $100 increments for $4 per transfer. (You can also apply for a line of credit to cover transactions when you do not have sufficient funds in your checking account.)


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