Overdraft protection
A bank's line that covers a purchase when your balance runs out - at a price that is easy to misread.
A bank's line that covers a purchase when your balance runs out - at a price that is easy to misread.
Without protection, a card purchase that exceeds your balance is declined; with it, the bank pays the difference and records a negative balance you repay. Some banks link a savings account or credit line as the funding source, others simply extend the negative balance directly, and the economics differ: linked-source transfers may carry a small flat fee, while a direct overdraft can accrue fees per item plus daily charges until you bring the balance back above zero.
Regulation requires opt-in for debit-card overdraft at point of sale, and declining a swipe is often the cheapest outcome available. The Consumer Financial Protection Bureau has repeatedly found that a small share of accounts generates most overdraft fees - usually recurring small transactions rather than one emergency. If you keep the feature, a linked savings buffer at the same bank is the cheaper variant; if you do not, watching for low-balance alerts replaces it.
Worked example
A $45 purchase on a $20 balance with a $35 per-item overdraft fee costs $80 for a $45 item - an effective 178% charge for one day of coverage - which is why a $50 linked savings buffer beats the feature outright.
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