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What is Overdraft Protection & Why Might You Need It?

LMFCU Overdraft Protection Information

Many of us have had that moment. A forgotten auto-draft payment hits your account, or a check that took weeks to clear is finally cashed, and suddenly your account is closing in on a negative number. Even something as simple as transposing a number when updating your budget or balancing your checkbook can cause overdrafts for the most cautious of consumers. It’s not a pleasant experience for those who do not have overdraft protection, and it can be costly.

What is Overdraft Protection?
The good news is the credit union offers overdraft protection to our members. This service allows payments you already made to clear even if you do not have enough money in your checking account to cover the full amount.

Different financial institutions have different methodologies for the process. Some institutions may shift the money from your savings account or a line of credit into checking to cover the difference for one small fee rather than multiple costly overdraft fees. It’s important to review your options and any associated fees when exploring this beneficial protection.

LMFCU overdraft options include: 

  • Overdraft protection from your primary or secondary savings. Transfers are made in $100 increments and are subject to a $5 overdraft transfer fee. You may of course transfer funds yourself using Online Banking or the Mobile Banking app.
  • Rediline overdraft line of credit. Transfers are also made in $100 increments and are subject to a $5 transfer fee. You may also manually transfer funds from your Rediline line of credit to your various accounts.
  • You may also set up a combination of savings and Rediline overdraft protection. For example, you could first have funds drawn from your savings, if available, and then drawn from your Rediline overdraft line of credit. 

Benefits of Overdraft Protection
The most significant benefits of overdraft protection are financial in nature and can include any of the following:

  • Prevents declined debit card transactions.
  • Allows you to avoid returned check fees from companies you pay.
  • Spares your reputation with your institution from the hit of bouncing a check or having an electronic ACH payment returned.
  • Protects you from losing vital services like water, gas, or power due to non-payment or NSF checks.

The benefit to you is that you don’t have to deal with overdraft fees from the financial institution plus the utility company, supermarket, or retailer where you wrote the check. There is a price to pay for this convenient and valuable service, however.

Overdraft protection can be a critical benefit for you if your account frequently goes into negative numbers. However, you might want to consider revising your budget instead if you’re constantly utilizing this service and incurring regular fees.

Do You Need Overdraft Protection?
Everyone has unexpected expenses hit at some point in time. Perhaps a yearly subscription payment for Satellite Radio or a quarterly insurance payment you forgot about, even monthly subscription box services that hit at the wrong time can create challenges for your budget and checkbook. If you’ve ever experienced one of these situations, then you can certainly benefit from adding overdraft protection to your checking account.

Overdraft protection only works effectively when you’re committed to responsible spending and account management.

Are There Fees for Overdraft Protection?
Overdraft protection can come with a fee, as you are getting a value for this protection. Some of the more common fees charged by other financial institutions are usually between $10 and $35 or daily interest fees until your balance is corrected.

Therefore, be aware of any fees that may be associated with overdraft protection. If there is a fee, it’s a good idea to monitor your account balances through online/mobile banking regularly and maintain a current budget. You may setup account alerts if you are a LMFCU Online or Mobile Banking user. 

The other caveat is that overdraft protection is not always automatic. First, you must request the privilege of overdraft protection from your financial institution. Then, while some institutions will make the transfer automatically, others may alert you and request permission to make the transfer. Each financial institution is different in how they handle overdraft protection.

We’re Here to Help!
Nowadays, there is a multitude of ways to pay for an item or service. From traditional checks and debit cards to online and mobile payments, one can quickly lose track of their current balance. Overdraft protection provides an extra layer of defense against unwanted fees.

If you’re interested in learning more about overdraft protection and adding this beneficial service to your accounts, stop by our office or call us today at 800-410-0501.

Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.