Overdraft protection is an option offered by most banks, to prevent checks, Debit cards, ATMs, as well as wired and electronic transfers from causing your account balance to fall below zero. If this happens, it can trigger an overdraft fee or a non-sufficient (NSF) fee.
When you are charged an overdraft fee, the bank is actually covering the shortfall and charging you for the services offered when the transaction goes through successfully. This is why it is sometimes known as a “courtesy fee.”
With NSF, the transaction usually isn’t covered by the bank, and non-preauthorized transactions made with a check are returned unpaid. This is when you shall hear that your check has “bounced.”
Most banks will charge hefty overdraft fees, and NSFs are usually around $30-$35. This is the average cost for accounts that do not have sufficient funds.
Key points to note
Overdraft protection is a guarantee that your check, wire transfer, ATM transaction or any other transaction you make in your account shall clear, regardless of the balance remaining in your account, even if the account reads zero.
You shall be charged heavy fees and interest with the overdraft protection, depending on the type of account you have with the bank.
The lines of credit associated with overdraft protection usually range from $250 to $5,000 and above.
So, why should you use the overdraft protection option?
There is nothing as bad as having a check “bounce” in your account, especially if you are a business professional. It will not only embarrass you to your clients but also cause them never to trust you in the future.
Having insufficient funds when a transaction needs to go through can be quite expensive and disruptive to you and your business, and not only will the bank refuse the payment and charge you an NSF fee, or a penalty fee, you may also end up getting charged by the merchant for the failed transaction.
Always having “bounced” checks can also cause the bank to close your account, and this will hurt your image and chances of opening any other new accounts with the bank.
Customers who choose this overdraft protection can be able to link their checking accounts to their savings, credit cards and all other lines of credit available to them, so they can avoid triggering an overdraft fee or an NSF.
This means that you shall get a preapproved loan to transfer, which kicks in automatically when you write a check, swipe your debit card, makes a wire transfer or ask the ATM for money which is more than what you currently have in your bank account.
It can sometimes be referred to as “a Cash Reserve Checking,” which is most frequently used as a cushion for checking accounts, but it can be applied to saving accounts as well. Banks have the right to reject loans or funds transfers that fall outside of the rules of the overdraft protection agreement.
Bank customers can also opt-out of the overdraft protection for their checking or savings accounts if they no longer need it.
How does it work?
Usually, the agreement kicks in when you as the account holder withdraws more than your current bank balance in your linked account. In this case, you shall be charged a transfer fee to facilitate the movement of funds to cover the shortfall.
You may also be charged additional fees each month that the overdraft is used or a fixed monthly fee for continuous protection.
If you do not have overdraft protection, it is not uncommon for your bank to charge you multiple overdraft fees or NSFs per day when you make successive purchases without realizing that the amount in your account shall not be enough to cover these purchases.
Most banks will also charge an extended overdraft fee if your checking account goes negative for a couple of days, without any deposit to cover the overdrawn status.
Here’s an example of how overdraft protection works
If you happen to have overdraft protection on your account, and you write a check of let’s say of $800 to cover your monthly rent for example, and your account only has $650 in it, instead of the bank bouncing the check due to insufficient funds, your overdraft protection will kick in immediately the check is cashed.
So, the bank will charge you a transfer fee of $34 for approving the debit transaction that is exceeding your available funds, and your account balance will now read $616. The balance shall be covered through the linked credit card, savings account or line of credit you already have in place.
The Chase Bank overdraft protection
The Chase Bank Overdraft Protection product is an optional service that allows you to link your Savings account to your checking account as a back up to help you pay for any transactions that may overdraw your account.
The amount you shall need to cover the transaction shall be transferred from the available funds in your linked accounts.
So, what’s the catch here?
Although the bank says that they do not charge any fees for an overdraft protection transfer, they shall charge you a $5 savings account withdrawal limit fee. This fee will apply to each transfer out of your saving account to cover six months.
According to Chase Bank, they will make one transfer for you per business day, for the amount that shall bring your checking account balance to zero. If you do not have enough funds available in your back up accounts to bring you back from the negative state, you shall be charged a fee of $34 for the insufficient funds.
The Chase Bank Overdraft fee is pretty standard, and the charge fee of $34 is only when your account has insufficient funds, and your other linked accounts cannot help to return it back to normal. The bank shall not charge you more than three insufficient funds fees per day, which is a total of $102.
In addition, the Chase Bank Overdraft policy of 24 hours, states that it shall not charge you any fees if your account balance at the end of the business day has been overdrawn by less than $5.
However, if your account remains overdrawn for more than five days consecutively, you shall incur a charge of $15 extended overdraft fee in your account, regardless of how much you have overdrawn the account by.
Chase Bank Overdraft practices
The bank’s standard Overdraft Practice is to allow an overdraft transaction based on their discretion and in accordance to your account history, the deposits you have been making, and the total transaction amounts.
This standard practice comes with all of their checking accounts except the Chase High School Checking, and the Chase Secure Checking accounts.
What is covered?
Automatic payments to your checking account such as a mortgage, a recurring phone bill or a utility bill.
Any recurring debit card purchases such as your monthly gym memberships and movie subscriptions.
What isn’t covered?
Your everyday debit card transactions such as gasoline charges, grocery purchases, and dining out.
Sometimes they are not able to pay for an overdraft transaction. If this happens, the transaction shall be declined or returned unpaid. If they return the transaction as unpaid, they will charge you a small fee for this.
The cost of the Chase Bank Overdraft protection
If they pay for your overdraft, you shall be charged $34 for having insufficient funds in your account.
If your check or automatic payment is returned, a $34 return item fee will be charged to your account.
When a check or an automatic payment submitted multiple times by merchant results in both a returned item fee or an insufficient funds fee, you shall only be charged for one of these returned items.
The limit is three for either of these fees per day, making a total of $102.
When is the fee not charged?
If the bank declines a recurring debit card transaction.
If your account balance at the end of the business day has been overdrawn by $5 or less, for items that are $5 or less.
If you are a Chase Private Client, the bank shall waive the Insufficient Funds and Returned Items fees.
For Chase Sapphire Checking account customers, the insufficient funds and returned items fee is also waived if you make less than four insufficient fee transactions in a year.
Requesting Chase bank to waive the fees
You can request Chase Bank to waive the Overdraft fee by calling them. You should call them and let them know in advance that you have made a transaction that could potentially overdraw your account. There is a good likelihood if you are their customer that they will offer to refund you some of the fees incurred.
Special Overdraft Considerations
Overdraft protection lines of credit usually range from $250 to anything above $5,000, and of course, they typically have interest rates attached to them.
If you use your credit card, please note that the amount shall be treated as a cash advance, and it doesn’t have a grace period, plus it shall incur a flat fee of $10 or 5% on the total amount, whichever is greater.
This makes it fairly a fairly expensive form of overdraft protection.
A linked savings account is most probably the least expensive solution, but of course, you shall need to have money in the account to cover the needed funds.
Benefits of having an Overdraft Protection
The best part of having overdraft protection is that; even when you do not have enough funds in your checking account, the check will still clear, your ATM shall always give you money, and any debit card transaction will go through.
You shall not have any more bounced checks, plus you will avoid the inconvenience and embarrassment that goes with it.
This will help you maintain your professional relationships if you are a business owner, plus you will never go without money when you need it.
Limitations of Overdraft Protection
Though this is an excellent way of ensuring that your checks don’t bounce, have a look as the limitations below, before you make this commitment;
Fees and interest rates
This is one of the downsides of the overdraft protection; you shall be charged a transfer or overdraft fee, even if you are using your own money to cover the shortfall. In case you receive an overdraft line of credit, you shall also be required to pay interest on the amount you shall borrow until you pay it back.
Some transactions may still not clear
What a bummer! You have Overdraft protection, and when you issue a check in your insufficiently funded account, it bounces. This mostly happens when your backup source also has insufficient funds.
It’s quite terrible when this happens, and it’s essential to understand that sometimes it does, so keep some cash on hand, or leave enough money on your credit card just in case you have an emergency transaction that needs to clear.
The terms and conditions of overdraft fees vary significantly one bank to another, and if your bank’s fees are high, you can try the Chase Bank Overdraft Protection product as it is an industry-standard.
Most people do not understand why they need to take this up, but when you find yourself in a fix, and urgently in need of clearing a check or making a wire transfer when your account cannot cover the transaction, you will appreciate having overdraft protection.
Chase Bank has made this service available to anyone that needs it, and all you need to do is log on to their website, give them a call, or visit any of their branches, to ensure that your account is covered in case of insufficient funds. For business people, this is a great idea.