Overdraft protection is a handy last defense line. The more you make use of it, the more hazardous it turns to be to an individual’s financial state. If correctly used, it will be a wonderful idea. There are few pros as well as cons when making use of this service on a person’s checking account.
It occurs when individual attempts to make use of one credit card, write any cheque or may withdraw a sum of money from his bank account. But the transaction is incomplete due to insufficient funds.
On the basis of the institution, either one overdraft transaction gets processed or rejected. So in both cases, a fee is charged in the procedure.
Some financial institutions may charge a huge number of a non-sufficient fund or NFS fees, but most of them limit it not greater than $7 each day. If any account stays with a balance that is in negative for a long duration, extra fees are charged.
Depending on the fee schedule of a bank, these may get charged every day or weekly. An extended overdraft fee may equal out to $10 each day at some of the institutions.
It comes in many different forms. The basic idea is if an individual makes one transaction on his debit card and it exceeds the amount present in your account, the overdraft protection will be providing you with the additional fund that you require for covering it.
However, it is one such service that will not be performed without a charge often. It saves you from the embarrassment of declination of your card.
The type of overdraft protection that comes first is by linking your checking account to another, mostly a savings or one credit card.
Some financial institutions allow individuals to link several accounts.
As an account holder, if you overdraw your checking account then funds get transferred from your linked account for covering that transaction. You will get charged with a transfer fee.
Another type of overdraft protection is known as an overdraft line of credit. This type of overdraft protection allows a bank to loan you fund for covering your overdraft cost.
Depending on a certain bank, you may be charged interest on such a line of credit as well as be always charged with a fee for an overdraft in order the cover that transaction.
If you use overdraft protection, ensure it is via a linked savings account and no credit line.
Linking one credit card to the checking account is a better alternative than a credit line because using it too frequently might get you involved in bad habits that cost a lot in the future.
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