The Perks of Overdraft Protection

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Whether you’re living paycheck-to-paycheck or simply managing monthly cash flow, sometimes balancing mistakes happen. A check you wrote, or a bill payment hits your account when not enough funds are available, resulting in unpleasant Non-Sufficient Funds (NSF) fees. While this accident can create a trickle effect of charges and budgeting mishaps, it doesn’t have to be that way. Services, like Overdraft Protection, can eliminate any balancing fears and ensure your payments are received on time.

Understanding Non-Sufficient Funds

Your financial institution charges a non-sufficient funds fee, or NSF, when your checking account doesn’t have enough money to cover a purchase or withdrawal. Your bank or credit union will decline to cover the transaction and block it from going through, resulting in an NSF fee.

  • Which Payments are Susceptible to NSF Fees?

NSF fees typically apply to ACH payments or checks. Most institutions will decline debit card transactions at the point of sale without charging a fee; however, not all. Be sure you understand how NSF fees are assessed on your account.

  • How Much are NSF Fees?

The price tag for NSF fees will vary by institution, but they generally range between $20 and $40 each. However, that is not the only charge you’re likely to incur. The merchant you attempted to pay might charge a returned check or ACH fee (typically around $25). Plus, you could receive a late payment fee as well.

  • What is an Example of an NSF Fee?

Assume you’re paying your electric bill, which is $150. However, your checking account had only $125 in it at the time. Because the amount exceeds the funds available in your account, the payment will be declined – resulting in you being charged an NSF fee.

Your fees may look like this:

  • $25 NSF Fee (financial institution fee)
  • $25 Returned Check Fee (merchant fee)
  • Late Fee of 3% of the Amount Due (merchant fee)

Non-sufficient funds fees can become costly because two parties incur costs on your behalf. The financial institution must process and return the payment, and the merchant you paid receives a declined payment – which they must recollect from you.

However, you can avoid all these extra costs and fees with a simple service called Overdraft Protection.

What is Overdraft Protection?

Overdraft Protection is a service offered by most financial institutions at no cost. With this service, you essentially link another account (usually your savings account) to your checking account as a backup. The process, in simple form, works like this:

If a transaction comes through and you do not have sufficient funds in your checking account, your financial institution will look to see if you have funds available in your savings account (your linked account).

  • If funds are available, they will draw from that account and cover the remaining payment amount. Usually, there is no fee for this service.
  • If you do not have funds in your overdraft-linked account, the payment will be denied for non-sufficient funds, and you’ll incur regular NSF-related charges.
  • What is the Cost of Overdraft Protection?

Most financial institutions do not charge for overdraft protection when linked to a backup account, such as your savings. However, if there is a fee, it’s usually nominal compared to the NSF alternative. Most people would rather pay a nominal fee (if applicable) than have their payment denied and incur traditional NSF-related fees.

  • Do You Have to Apply for Overdraft Protection?

You must enroll in this service with your financial institution and list your backup account. Generally, there is no application since your bank or credit union is not lending you money.

  • Are There Restrictions to Overdraft Protection?

Due to industry regulations, most financial institutions limit the number of allowable overdraft transactions to six per month.

  • What is an Example of an Overdraft Protection Transaction?

Let’s use the same example of paying a $150 electric bill. However, you only had $125 in your checking account at the time. With overdraft protection, the extra $25 needed is automatically drawn from your savings account to cover the transaction, and your payment goes through successfully. You can avoid any NSF fees, returned check fees, or late fees with this protection.

What is Courtesy Pay?

Courtesy Pay is a special type of overdraft protection offered by most financial institutions. The specific name of the service may vary by bank or credit union, but its function remains the same.

With Courtesy Pay, if you don’t have enough funds in your checking account, your bank or credit union will cover the overdrawn amount and complete the transaction for you. However, you must repay the amount your institution covered, plus a Courtesy Pay fee.

  • Is Courtesy Pay a Loan?

Since your financial institution covers the overdrawn amount on your behalf, it can be viewed as a short-term loan. Generally, you have between 60-90 days to repay the amount your institution covered, plus the Courtesy Pay fee.

  • Do You Have to Apply for Courtesy Pay?

Financial institutions usually require you to enroll in this protection, and your account must meet specific requirements – for example, being in good standing, being a member for a set time, etc.

  • How Much is Covered by Courtesy Pay?

The amount that you can go into the negative will vary by financial institution. For example, many institutions allow members in good standing to overdraw their checking account up to $500. Consequently, there are strategies where you can use this service as an alternative to costly payday loans.

  • What is an Example of a Courtesy Pay Transaction?

Once again, let’s use the example of paying a $150 electric bill. However, you only had $125 in your checking account at the time. Courtesy Pay allows the credit union to pay the difference of $25 for you, and you will incur a Courtesy Pay charge instead of an NSF fee. 

Which Protection is the Best Option?

Enrolling in general overdraft protection is a no-brainer! It allows your payments to clear without any extra hassle, and you’ll avoid NSF fees, returned item fees from the merchant, and possible late fees or dings to your credit. Again, this service uses funds in a linked backup account, such as your savings, to complete transactions.

Courtesy Pay is an extra service that can be invaluable if you want to overdraw your account strategically as a short-term loan. It also allows you to avoid costly returned merchant fees and protects your credit score from potential late payments on loans.

Finally, some institutions have recently eliminated NSF fees. While your transaction is still declined like a normal NSF, you do not receive NSF fees from your institution. However, you can still receive costly fees from the merchant – again highlighting the importance of general overdraft protection.

We’re Here to Help!

Financial accidents happen. Knowing your account is protected provides peace of mind. We encourage you to speak with a team member to determine which solution is right for you. We’re here to help you learn how to manage your finances efficiently so you can make the most of your money.

If you want to learn more about Overdraft Protection or Courtesy Pay, please stop by any of our convenient branch locations or call 888-777-9982 to speak with a team member today.


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    This credit union is federally insured by the National Credit Union Administration.

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