How Overdraft Protection Transfers Work

Overdraft protection transfers allow your transactions to go through even if you overdraw your checking account.
Margarette Burnette
By Margarette Burnette 
Edited by Sara Clarke
How Overdraft Protection Transfers Work

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What is an overdraft protection transfer?

An overdraft protection transfer is an opt-in service that lets you link your checking account to another account at your bank or credit union, typically either a savings account or an overdraft line of credit. It is one of the several types of overdraft protection options that are typically offered by banks.

When your checking balance is too low to cover a transaction, your bank automatically moves money to checking from the linked account or line of credit. Some banks do this for free, while others might charge $12 per transfer or more.

Even if there is a fee, it is usually lower than the bank’s standard overdraft fee.

How is overdraft protection different from overdraft coverage?

Overdraft coverage is when banks use their own money to cover a transaction that would overdraw your account — and charge you a fee to do so. You have to opt in to this service, and it’s expensive: The typical fee is about $35.

And there can still be more costs. If you don’t bring your account up to a positive balance, the next item you buy can trigger another overdraft fee. Also, even if you don’t make more transactions, you may be subject to a continuous negative balance fee.

» Looking for consumer-friendly overdraft policies? See overdraft fees by financial institution

What types of accounts can be linked for overdraft protection?

You can connect a savings, money market or second checking account to your main checking account to cover any overdrafts with your own money. Fees generally range from zero to $12 per transfer, although some banks charge more for this service. Your bank may also offer an overdraft line of credit, which tends to come with a high interest rate.

In addition, financial institutions often charge a savings withdrawal limit fee if you exceed six transfers per month from a savings or money market account — though those limits were lifted during the COVID-19 pandemic and continue to be waived — and an overdraft protection transfer would count against that limit. If you tend to transfer money out often, be careful.

» For a basic overview, check out our overdraft fee explainer

Can you use a credit card for overdraft protection?

You can also link a credit account, such as a credit card, personal line of credit or home equity line of credit, as a backup. You’ll pay interest on the transfer amount and possibly a transfer fee each time money is moved.

Your bank may send you a bill and you may accumulate interest if you don't make payments on time and in full, as would happen with any credit account. Credit accounts are subject to approval, so this option isn’t guaranteed for everyone.

Things to consider when using overdraft protection

Although overdraft protection transfer services can be a low-cost alternative to bank-funded overdraft coverage, there are still reasons to be wary:

  • Even with protection, you can still overdraw your checking account. The overdraft protection transfer service works only if you have available funds in your backup savings or credit account. If you write a check for $200, but your checking account has $10, and your backup savings account has only $100, you could still face an overdraft. The transaction could be denied, or if you authorized your bank to cover overdrafts — and your bank chooses to do so — you could be charged steep fees.

  • More than the exact overdraft amount could be transferred. Banks may transfer overdraft funds in multiples of a certain amount, such as $50. If a transaction pushes your account $8 in the red, for example, the bank could transfer $50, not $8, from savings.

Opting into an overdraft protection transfer service can protect you from steep overdraft fees. You just don’t want to make a habit of spending more than you have.

These programs can help resolve the occasional overdraft, but they can’t replace healthy money habits, like using alerts to keep an eye on your balance. If you struggle with budgeting or keeping enough money in your checking account for everyday transactions, consider opening an account that has eliminated overdraft fees or offers free or low-cost overdraft protection.

» Some banks are reducing or eliminating overdraft fees: See the latest overdraft news

Frequently asked questions

Opting into an overdraft protection transfer service can help resolve the occasional overdraft and protect you from steep overdraft fees. But you should try to avoid relying on overdraft programs. If you can, build up the habit of keeping enough cash in your checking account for everyday transactions. Using low balance alerts, if your bank offers them, to track your account can also help.

If you don’t have enough money for a transaction, your bank may pay for the transaction and charge you an overdraft fee, or it may choose to decline the transaction and prevent you from overdrafting.

If you’ve opted into overdraft protection, funds could be transferred from your linked account to cover the transaction. You can also contact your bank and ask to opt out of overdraft coverage. This means that the bank will decline any transaction that would result in an overdraft.

When your checking balance is too low to cover a transaction, your bank automatically moves money to checking from a linked account, if you’ve opted into overdraft protection service.

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