What is overdraft
As the name suggests, overdraft protection gives protection to any deficit in the amount in your bank. For example, if you have bought something and don’t have enough cash in your account, the extra amount will be taken card by or covered by the bank. This process is called overdraft protection. It can term as a service from the side of the bank where the customer instructs the bank to pay for the customer’s transaction when he or she does not have sufficient money in the account. For this payment, the bank may charge an extra amount known as an overdraft fee. In the initial years of banking, usually, banks automatically added this feature for the customers; however, nowadays, the customer himself has to request for this facility. This service should be available by a person who has good spending habits.
Explaining the process of overdraft protection
It can be well site using an example. In a situation, if a customer goes for a purchase of $ 200 with your debit card. The customer does not possess that much amount in the account. The bank will cover the same amount with an overdraft fee of a certain amount. In this situation, the customer can still move with the debit card payment and complete the purchase. If the customer hasn't opted for any overdraft protection, the bank will reject covering the amount, and the fee will deny.
How to restrict depending on overdraft protection scheme
The main method to reduce the dependency on overdraft protection from banks is to reduce the purchase patterns if your bank does not have enough balance. Continuous checks made regarding bank balance may help get a clear idea regarding one’s financial status and reduce unwanted purchases. It will be better to plan all the purchases in the future to reduce the dependency on overdraft protection offered by banks.
To summarize, overdraft protection guarantees that a purchase transaction will occur even if the customer does not have enough money in their account or even the account balance hit the amount level. Also, it should note that the banks will charge a customer if the customer avail overdraft. This fee may vary from $ 250 to and above depending on the amount of purchase made. Nowadays, the customer should opt for this overdraft facility, and it will not add by default, unlike previous years.
What are the merits of overdraft protection?
The first and foremost merit of overdraft payment is that it helps cover any emergency payment situation even if the customer does not have enough money. It can also avoid embarrassing situations that may arise due to bounced checks. However, the overdraft protection system is not free. The customer has to pay a certain amount as an overdraft protection fee to the bank, which is considered an added liability. Continuous defaults made regarding the overdraft protection fee payment and over-dependency on overdraft protection will affect the credit scores of the customers.
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