If you write a check that is presented to your bank and you don't have enough money in the bank to pay the check, your check will bounce and you could be paying your bank insufficient funds fees and the presenting bank with a returned check charge. The total cost to you for one, often small mistake can be well over $50.00! And that price doesn't include the embarrassment fee.
There are some options. One of those is overdraft protection. But how do you get that?
There's more than one type of overdraft protection. There is the loan type, and there is the savings backup. The fees for each vary wildly by type and also by bank. You should check carefully to see what you are getting and how much you'll pay.
First we'll go over the loan type. You will have to apply for this with your bank. It is a line of credit that you will access only when a check is presented that would overdraw your account. The bank will pay the check, pulling the money from the line of credit. This will save you the returned check fees from the presenting bank. However, your bank will usually charge you interest until you pay back the loan. They will almost always charge you a fee as well. It is not unusual for the fee to be the same dollar amount as the insufficient funds fee they would charge if they didn't pay the check. But you have saved yourself the embarrassment fee and the returned check charge.
One thing to keep in mind here is that the bank has to approve you for the line of credit. It is a type of loan. Another thing to remember is that this loan has a limit. You should make sure you know where your limit is! If you allow your overdrafts to reach the limit, the bank will start allowing those checks to bounce again.
The other type of overdraft protection uses a link to another account of yours. This can be everything from a separate checking to a brokerage account. Usually it is a savings account. Because this is your money, you don't have to apply for a credit line to use this. You won't have to pay any interest charges either, but you may have to pay transfer fees. You will need to check with your bank to find out what those are. Some banks may offer you a certain number of transfers a month before they start charging you. Others will charge you from the first transfer. And of course the amount of the fees will vary by quite a bit.
Both of these protections may save you from some credit dings. You will have to apply with the bank for the line of credit. With the protection from another account, you will have to sign up for it, but it shouldn't appear on your credit report. You will need to ask your bank what they offer and use the plan that best fits your finances.
It is usually a good idea to have overdraft protection. That doesn't mean it's a good idea to use it very often. It's still pretty expensive. However, in an emergency it can protect your credit rating and save you from a major financial headache!
Click here to visit HowToDoThings.com