Credit Union Overdraft Protection: Do You Need It?
Imagine standing at the coffee shop counter trying to pay for your half-caff mocha latté (no whip), and your payment won’t go through due to insufficient funds in your checking account. The color starts to rise in your cheeks as you scramble to find another payment method to complete your purchase and put a stop to the impatient looks of the patrons in line behind you.
You have just experienced an overdraft — an attempt to spend more money than you have in your checking account. But there’s no need to stress when you bank with your local credit union, where you’re likely to find low or no fees for credit union overdraft protection! Overdraft protection provides a safety net so you can pay for that coffee with no problem and be on your way.
What is Overdraft Protection?
Overdraft protection is an agreement with a financial institution that covers checking account shortfalls, allowing payments to go through even if you do not have enough money in your account at the transaction time.
In other words, if you’re trying to buy $80 tickets to a music festival with your debit card but, unbeknownst to you, your rent check cleared early, and you only have a balance of $50 in your account, overdraft protection will kick in and cover the $30 gap.
How Does Overdraft Protection Work?
As an option on your checking account, overdraft protection covers your bills and transactions if you attempt to spend more money than you have on deposit. This protection may come with a cost, but credit union overdraft protection fees are among the lowest you can find and are always less costly than incurring expensive fees for bouncing checks.
Credit unions offer several ways to help you navigate overdrafts, whether using overdraft coverage services or linking your checking account to another account, like your savings account or money market, connecting to a credit card, or accessing a line of credit.
How Do I Know If I Have Overdraft Protection?
When you open a credit union checking account, you will receive various benefits, which may include overdraft protection to cover paper checks or online bill payments. If you aren’t sure if your credit union offers checking accounts with overdraft protection, just call or visit your local branch to find out. Credit union advisers are always happy to discuss the checking account services they offer and help you with a plan that fits your lifestyle and financial situation.
A similar type of overdraft protection is available for debit card payments and digital wallet services like Venmo, Zelle or PayPal. The government requires consumers to opt-in to protect these types of transactions.
Pros of Overdraft Protection
So, do you need credit union overdraft protection? Well, one of the top benefits of credit union overdraft protection is the assurance your transaction will go through. That way, whether you’re overdrawn due to an emergency expense, a late deposit, or made a simple mistake, the ATM will still provide your cash, your debit card transaction will continue to process, and your peer-to-peer payment will be seamless.
You risk incurring overdraft fees or nonsufficient funds (NSF) charges without overdraft protection. For example, if you attempt a debit card purchase, write a check, or pay a bill online for more money than you have in your account without overdraft protection, the transaction will not occur, and you may be charged an NSF fee, which can run as high as $35 per transaction.
Cons of Overdraft Protection
While overdraft protection may be a worry-free way to ensure you can buy groceries and cover your bills before payday, there may be a downside. If you get too comfortable with it, you could develop a tendency to overspend. Even the nominal fees some credit unions charge for covering your overdrafts can add up, putting even more strain on your finances.
This begs the question, can you opt out of overdraft protection? You can — for most types of transactions. Since 2010, financial institutions have been required to get your permission to add overdraft protection to your account rather than automatically signing you up. However, certain types of transactions do not apply to that requirement, such as automatic electronic payments (like recurring monthly subscriptions) or bounced paper checks.
If you choose overdraft protection, guard against increasing your comfort around low fund balances. This could erode good money management strategies and lead to a cycle of struggling to keep your account in the black.
Ways to Avoid Overdraft Fees
If you’re looking for assurance that you’re protected from overdrawing your checking account but are concerned about racking up fees, never fear. Your local credit union is the perfect place to maintain your accounts and provide practical money management advice.
Credit union finance professionals can show you ways to avoid overdrafts altogether by providing strategies and tools to help you keep track of your income and expenses and keep your account balance from falling too low. For example, you can simply monitor your income and expenses regularly and eliminate recurring costs for products and services like smartphone apps and subscriptions you don’t use, which can drain your account before you notice it’s happened.
Credit unions also offer free backstop programs to help you catch potential overdrafts before they occur, including setting up text or email alerts when your funds are in danger of bottoming out. Options for linking your checking account to your savings account and other financial resources can also enable you to self-fund any overdrafts you incur along the way.
Further Resources on Overdraft Protection
Here are some additional sources for guidance on ways to cover your expenses while protecting your hard-earned money.
- Minimize the chance of an overdraft. Follow these tips from mycreditunion.gov, illustrating how to avoid overdraft fees.
- Know your rights. Consumerfinance.gov explains when financial institutions are allowed to charge an overdraft fee.
- What’s the big deal? Learn from this Bloomberg report just how much Americans have been paying in bank-driven overdraft fees.
Credit Unions Are Here to Help
Overdraft protection is one way to help you avoid an “oops” moment and ensure you can cover the tab. If you’re ready to say goodbye to excessive overdraft fees for good, credit union overdraft protection has you covered. Use our handy Credit Union Locator Tool to find a credit union branch near you so you can go ahead and enjoy that gourmet coffee, a weekend away with friends, or dinner with family, knowing your credit union has your back.