Protect Your Money > Overdraft Protection

Protecting Yourself from Overdraft and Bounced-Check Fees

How do overdrafts and bounced checks happen?

When you:

• write a check,
• withdraw money from an ATM,
• use your debit card to make a purchase, or
• make an automatic bill payment or other electronic payment for more than the amount in your checking account, you overdraw your account.

Your credit union has the choice to either pay the amount or not. If it pays even though you don't have the money in your account; you may be charged an "overdraft" fee. If your credit union returns your check without paying it, you may be charged a "bounced check," or "nonsufficient funds," fee. And the person or company that you wrote the check to - for example, a store, your landlord, or the phone company-may charge you a "returned-check" fee in addition to the fee your credit union charges you.

How can you avoid overdraft and bounced-check fees?

The best way to avoid overdraft and bounced-check fees is to manage your account so you don't overdraw it.

• Keep track of how much money you have in your checking account by keeping your check register up-to-date. Record all checks when you write them and other transactions when you make them. And don't forget to subtract any fees.
• Pay special attention to your electronic transactions. Record your ATM withdrawals and fees, debit card purchases, and online payments.
• Don't forget about automatic bill payments you may have set up for utilities, insurance, or loan payments.
• Keep an eye on your account balance. Remember that some checks and automatic payments may not have cleared yet.
• Review your account statements each month. Between statements, you can find out which payments have cleared and check your balance by calling your credit union or by checking online or at an ATM. Be sure to find out the actual amount in your account - your account balance not including any funds available to you through "courtesy overdraft protection," or "bounce coverage," plans.

Sometimes mistakes happen. If you do overdraw your account, deposit money into the account as soon as possible to cover the overdraft amount plus any fees and daily charges from your bank. Depositing money into your account can help you avoid additional overdrafts and fees.

What are "courtesy overdraft protection," or "bounce coverage," plans?

Many credit unions offer "courtesy overdraft-protection," or "bounce cover age," plans so that your checks do not bounce and
your ATM and debit card transactions go through. With these plans, you'll still pay an overdraft fee or a bounce coverage fee to the bank for each item. But you will avoid the merchant's returned check fee and will stay in good standing with the people you do business with.

What are some other ways to cover overdrafts?

• Link your checking account to a savings account you have with the credit union. If you overdraw your checking account, the credit union can transfer funds from your savings account to your checking account. Ask about transfer fees.
• Set up an overdraft line of credit with the credit union. You need to apply for a "line of credit" just as you would apply for a regular loan. If you overdraw your account, the credit union will lend you the funds by using your line of credit to cover the overdraft. You will pay interest on this loan, and there may be an annual fee. But the overall costs may be less than the costs for courtesy overdraft protection plans.
• Link your checking account to a credit card you have with the bank. If you link your account to a credit card, any overdraft amount becomes a cash advance on your credit card. You will probably be charged a cash-advance fee, and interest charges on the advance will start immediately. The cost of this option depends on the interest rate on your credit card and how long you take to pay back the advance. The choice is yours.

What do you need to know about courtesy overdraft-protection, or bounce coverage, plans?

• Avoid using these plans as short-term loans - they are costly forms of credit.
• If you overdraw your account, get money back into your account as soon as possible. Remember that you need to put enough money back into your account to cover both the amount of your overdraft and any fees.
• Even if you have one of these plans, there is no guarantee that your credit union will cover your checks, ATM withdrawals, and debit card and other electronic transactions that overdraw your account.
• Good account management is the lowest-cost way to protect your hard-earned money. If you need overdraft protection every now and then, ask your credit union about the choices and services that are right for you.