Overdraft protection covers a transaction that would otherwise be declined because your checking account balance is too low. It sounds like a safety net, but depending on the type, it can come with its own fees.
The main types of overdraft protection
- Linked account transfer: funds move automatically from a linked savings account, usually for a small transfer fee.
- Overdraft line of credit: the bank extends a small loan to cover the shortfall, which you repay with interest.
- Standard overdraft coverage: the bank pays the transaction and charges a flat overdraft fee, often the most expensive option.
You can opt out of some overdraft coverage
For debit card purchases and ATM withdrawals, banks are required to get your opt-in consent before charging an overdraft fee — without it, the transaction is simply declined instead.
How to avoid overdraft fees altogether
Many banks now offer low-balance alerts, and some no longer charge overdraft fees at all. Setting up a linked savings account as your overdraft protection option is usually cheaper than standard coverage, and checking your balance before large purchases avoids the issue entirely.
