Overdraft protectionMy bank offers this magic bullet called overdraft protection, however upon closer inspection it can be the antithesis as protection comes with a price. Today, bouncing a check is costly, my bank charges $38 per occurrence and I have heard some banks assess a daily fee for each day in a negative balance. In reality, most people at one time or another, have mistaken in calculations and caused an overdraft.

Overdraft protection is a service that protects your account in the event of an overdraft by sweeping funds from another account in your name to cover the overdraft. The linked account is typically a savings, a checking, credit card, or line of credit. Instead of an overdraft fee, you may incur a nominal sweep fee.

There are a few caveats to this ‘œprotection.’ First, some banks sweep funds in particular dollar amounts. For example, my bank sweeps in increments of $100 even if I only need to cover $20. As a result, banks promote spending and borrowing more than you truly need. Secondly, using a credit card for overdraft protection comes out of your credit line as a cash advance, and those interest rates are exorbitant!

Overdraft protection is for accidents like insurance; however data shows that consumers use overdraft protection on a recurring basis as a back up. Some tips to avoid the overdraft trap’¦ Keep track of your receipts and purchases. Calendar your automatic deductions, or stop them all together if it is costing you more than the convenience. Almost all financial institutions now offer online banking and as much time as we spend on the internet, why not make it work for you?

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Ashkan is also the co-founder of www.dayafter.us – a regional online publication focused on fashion, style, and culture.

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