How Overdraft Protection Transfers Work

Overdraft protection transfers allow your transactions to go through even if you overdraw your checking account.

How Overdraft Protection Transfers Work
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What is overdraft protection?

An overdraft protection transfer, or simply "overdraft protection," is an opt-in bank 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.

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.

Either way, the amount 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 median fee is about $34.

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.

» Interested in banks with consumer-friendly overdraft policies? See our article about 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 in order to cover any overdrafts with your own money. Fees generally range from zero to up to $12 per transfer, although some banks charge more for this service.

In addition, most financial institutions charge a savings withdrawal limit fee if you exceed six transfers per month from a savings or money market account, 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 get overdraft protection via credit card?

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, 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 get comfortable spending more than you have on a regular basis.

These programs can help resolve the occasional overdraft, but they can’t replace healthy money habits, like keeping enough cash in your checking account for everyday transactions or using alerts to keep an eye on your balance.

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 shouldn’t rely on overdraft programs. Rather than getting comfortable spending more than you have, 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.

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.

Some people might find the word “protection” to be misleading in this term because while the overdraft protection service does protect your account from going into a negative balance, you may be subject to a fee for the transfer.

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