Overdraft protection helps you avoid declined transactions and hefty fees when your checking account balance isn’t enough to cover a payment. Instead of your card getting rejected or triggering a $35 overdraft fee, your bank steps in to cover the difference—usually by pulling from a linked savings account, credit line, or credit card.
It sounds like a safety net, but it’s not always free—and it doesn’t guarantee approval. Here’s how overdraft protection works, what it costs, and how to decide if it’s the right move for your money.
Key Takeaways
- Overdraft protection links your checking account to a backup like a savings account or credit line to cover transactions when your balance is too low.
- It can help you avoid overdraft fees and declined payments, but some banks charge fees and coverage may be limited.
- To enroll, contact your bank and review the terms. You can also avoid overdrafts by using no-fee accounts, budgeting tools, alerts, and emergency savings.
How Overdraft Protection Works
Overdraft protection helps prevent your checking account from going negative by linking it to a backup source like a savings account or line of credit. If you try to spend more than your available balance, your bank automatically covers the difference using the linked account. This can keep you from racking up costly overdraft fees, dealing with declined debit card transactions, or bouncing a check.
It’s not a loan, and it doesn’t guarantee your payment will go through. It just gives you a fallback to avoid overdraft fees and the hassle of declined payments.
Terms vary by bank. Some offer it for free, while others charge a fee each time it kicks in—so make sure you know the details before you sign up.
Pros & Cons of Overdraft Protection
Overdraft protection can be helpful in some situations, but it isn’t always the best option. Here’s a quick look at the benefits and drawbacks.
Pros
- Avoids overdraft fees – Can save you from paying the typical $30–$35 fee for going negative.
- Covers unexpected expenses – Offers a cushion when you spend more than you planned.
- Keeps payments moving – Helps prevent declined debit card transactions and bounced checks.
Cons
- May come with fees – Some banks charge for each transfer or charge interest if linked to credit.
- Limited coverage – Not all transactions may be eligible for protection.
- Can lead to overspending – Relying on it regularly might create bad habits or unnecessary debt.
- Could affect your credit – If tied to a line of credit and not repaid, it may hurt your credit score.
Types of Overdraft Protection
Banks may offer several ways to protect your checking account from going negative. Here are the most common options:
- Savings transfer – Links your checking account to a savings account. If your balance is too low, funds are automatically pulled to cover the difference.
- Line of credit – A pre-approved credit line covers overdrafts. You’ll typically pay interest, but not an overdraft fee.
- Overdraft loan – Some banks offer a small loan to cover overdrafts. These may carry higher rates and stricter repayment terms.
- Credit card link (optional) – A few banks allow you to link a credit card, pulling a cash advance to cover overdrafts. This usually comes with high fees and interest, so it’s best used only as a last resort.
How to Get Overdraft Protection
Start by checking with your bank or credit union to see what overdraft protection options they offer. You can usually find the details online, in the app, or by calling customer service.
Review the terms closely—some options are free, while others charge per transfer or carry interest. If you decide it’s worth it, you’ll just need to link your savings account, line of credit, or another eligible backup source.
Other Ways to Avoid Overdraft Fees
Overdraft fees can be expensive. In fact, the average overdraft fee is about $35. Therefore, it’s crucial to take precautions to avoid them. Here are some other ways to avoid overdraft fees:
- Choose a bank with no overdraft fees: Many checking accounts, especially those provided by online banks, do not impose overdraft fees. Before choosing a checking account, weigh your options. This can help you find an account that meets your requirements and doesn’t impose arbitrary fees.
- Create a budget: Tracking your spending and sticking to a budget is one of the best ways to prevent overdraft fees. This can give you a better idea of where your money is going and help you identify areas where you may be able to cut back to avoid overspending.
- Set up account alerts: Many financial institutions offer the option to set up account alerts. When your account balance falls below a specific level, you receive these alerts. This can assist you in keeping track of your spending and preventing unintentional overspending.
- Build an emergency fund: It’s critical to have an emergency fund that can cover unexpected expenses so that you don’t have to rely on your checking account. Having a savings account that you can use in an emergency can help you avoid overspending and incurring overdraft fees.
- Use a budgeting app: There are numerous budgeting apps like Monarch and Empower that can assist you in keeping track of your spending and staying within your budget. Some apps also allow you to set reminders and alerts, as well as connect your bank account to monitor your balance.
Bottom Line
Overdraft protection can help in a pinch, but it isn’t a perfect fix—and it often comes with strings attached. If you’d rather skip the stress (and the fees), the smarter move is to use a checking account that doesn’t charge them at all.
Neobanks like Chime® and some online banks and credit unions offer fee-free checking, so you can avoid overdrafts without relying on a backup plan.
