Should You Opt for Overdraft Coverage?

Why your bank may not always have your best interests in mind.

Laura Adams, MBA
1-minute read

Overdraft Q.  I received a form from my bank that asks me to choose whether I want overdraft coverage or not. What do you recommend?

A. Financial institutions have to ask your permission to charge you a fee to cover overdrafts caused by ATM withdrawals or debit card purchases when you don’t have enough money in the account. 

This rule protects you from having automatic overdraft protection, if you’re not willing to pay a steep fee (that’s over $40 at some banks) for it. However, if you opt-out of overdraft coverage a debit card purchase or an ATM withdrawal will be denied if you have insufficient funds to cover it.

I recommend that you opt-out of overdraft coverage. Instead, enroll in a linked account, such as a savings or line of credit, for your overdraft protection. When you can’t cover a transaction using your regular account, funds will automatically be transferred from the linked account. That way you’ll never have a transaction denied nor will you be hit with a sky-high overdraft fee. At most institutions you can also sign up for e-mail or text message alerts that let you know as soon as your balance dips below a certain amount.

For more tips on avoiding bank fees, see How to Save Money.

Overdraft image from Shutterstock

About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.