Bank Overdraft 101

Bank Overdraft Opps- Fill gas tank, buy new kids’ shoes, fueled by coffee when suddenly more money was spent than what’s in checking and you’ve overdrawn!

Financial Tip Friday is brought to you in partnership with the 1st National Bank of Dennison

 Fear not, banks typically have overdraft protection plans!  These plans will help you cover any overdrafts you may have.

Overdraft Example

It happens sometimes, all in the same day:

  • $100 worth of groceries were bought,
  • $45 filled up the gas tank,
  • and you forgot $1,000 mortgage is set to be paid automatically,
  • then that evening, you have to write a $50 check to pay the babysitter.
  • However, when the babysitter deposited the check in the bank, your account only had $1,145, which means you are now short $50.
2 doorsWhat happens next? 2 Doors-

Door 1: You signed up for an authorized bank overdraft protection plan and the bank will pay the full $50 to the babysitter and “float” you the money.

Door 2: The check will “bounce” to the sitter’s bank and mark it with non-sufficient funds (NSF).  Now, you owe a fee (typically between $30-$40) and it can hurt your credit score. Let’s remember that if you overdraft more than one time, you can get charged a fee for each overdraft.

2 Main Types of Overdraft protection:

1 .  Authorized bank overdraft protection plan can advance money from a savings account to your checking account.  This will cover or “float money” if you overdraw.

2.   Another authorized bank overdraft protection plan can use credit.  Credit tied to a line of credit with the bank (card, personal credit loan, pay schedules) to balance your account if you overdraw.

Main takeaway:
  • Talk to your bank about overdraft protection option plans before you overdraft. If you’ve been down this road, talk with them today so you will not have large fees in the future.
  • 1st National Bank of Dennison has a team ready to discuss financial convenience and end checking account overdraft charges.  A Personal Loan Officer can meet with you if you choose to submit a loan application.

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