Adapted from MU Office for Financial Success blog post by Trish Savage, M.S., AFC®, Family Financial Education Specialist, University of Missouri Extension
Do you use an overdraft protection service from your bank or credit union? If so, you are one of the many consumers who do. Overdraft protection is an option most banks and credit unions offer to their clients so transactions (demands for withdrawal) will be processed and vendors will be paid even when there is an overdraft.
An overdraft occurs when the demand for payment arrives at your bank after you have written a check, have an electronic automatic bill payment processed, requested an ATM withdrawal or submitted a debit card transaction and there are insufficient funds in your bank account to cover the amount. Overdrafts can be very expensive because both the vendor and bank can charge fees for transactions when there are insufficient funds.
When a bank covers the amount that you are short instead of returning the check or declining the debit, you are basically getting into a short term loan, with fees and interest charged…
To learn more about these services and how to protect yourself from costly overdraft charges, see the full version of this article at http://missourifamilies.org/