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How Overdraft Protection Transfers Work

Overdraft protection transfers allow your transactions to go through even if you overdraw your checking account. The cost is usually cheaper than other options.
Banking, Checking Accounts
How Overdraft Protection Transfers Work
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An overdraft protection transfer, or simply “overdraft protection,” is an opt-in service that lets you connect your checking account to another account at your bank or credit union, typically either a savings or credit account.

When your checking balance is too low to cover a transaction, your bank automatically moves money to checking from the linked account. Some places do this for free, while others charge as much as $12 per transfer.

How is overdraft protection different from other options?

Banks typically also offer overdraft coverage, which is when they use their own money to cover a transaction that you don’t have enough cash for — and charge you a fee to do so. You have to opt in to this service, and it’s expensive: The median fee is $34.

With overdraft coverage, banks use their own money to cover a transaction that you don’t have enough cash for. This opt-in service is typically more expensive than overdraft protection transfers.

And things can get worse. If you don’t pay your bank the fee and the money you were short, your checking account remains negative. So the next thing you buy can trigger another overdraft fee.

With overdraft protection transfers, on the other hand, you won’t be penalized as much, if at all, and transactions will still be processed.

» Interested in banks with consumer-friendly overdraft policies? See our article about overdraft fees by financial institution

Linking a checking or savings account

When you connect a savings, money market or second checking account to your main checking, you cover any overdrafts with your own money. Because a bank completes the transfer for you, there might be a fee of around $10 or $12, either once per day or per transfer.

Because a bank completes the transfer for you, there might be a fee of around $10 or $12, either once per day or per transfer.

Keep in mind that a federal rule let financial institutions charge a fee if you exceed six transfers per month from a savings or money market account. So if you tend to transfer money out often, be careful.

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

Linking a credit account

You can also link your checking account to a credit account, such as a credit card, personal line of credit or home equity line of credit. You’ll pay interest on the overdrawn amount and possibly a transfer fee like you would with a linked savings.

Linking a credit account to checking means you’ll pay interest on the overdrawn amount and possibly a transfer fee.

Some banks have overdraft lines of credit that charge you interest at a variable rate and no fee. Whatever your bank offers, you’ll have to pay the balance by a due date. Credit accounts are subject to credit approval, so this option isn’t guaranteed for everyone.

Word of caution

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

  • You can still overdraw your checking. The overdraft protection transfer service only works if you have the funds to cover a transaction that’s more than your checking account balance. Otherwise, overdraft coverage can apply, and your bank might cover the transaction and charge an overdraft fee.
  • More than the exact amount might end up in your checking. Banks have their own overdraft practices, which include how much money they transfer from a linked account. Some transfer money in multiples of a certain amount, such as $50 or $100, which might not work best for you if you like to control how much stays in your savings. Worse, you might have enough to cover a transaction but not enough for the amount your bank wants to transfer.
  • Your bank doesn’t have to cover the transaction. Like overdraft coverage, an overdraft transfer is a courtesy service, so your bank isn’t required to pay your overdrafts.

If you rarely overdraw a checking account, opting into an overdraft protection transfer service can protect you from steep overdraft fees on those rare occasions. You just don’t want to get comfortable spending more than you have on a regular basis.

Overdraft protection transfers can help for the occasional overdraft, but these programs should never replace healthy money habits like keeping enough cash in your checking account for everyday transactions.

Updated Jan. 11, 2018.

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