OverDraft Protection for Online Bank Accounts
Overdraft protection is a line of credit that is attached to your bank account so that if you write a check for more than is in the account, or make an expenditure that is more than the account balance, the check or expenditure is covered by you going into “negative numbers” in your account. It essentially gives you the option of spending more than you have.
When you open a bank account and you are offered overdraft protection to go with that account, you may hesitate to accept it. Most people are aware of the pitfalls of easy credit, and overdrafts are the epitome of easy credit. It is so easy to make just one more purchase, knowing that even though you don’t have the money to pay for it, you can use the banks money, just “temporarily” and pay it back on payday. The problem with that is that, if you do that every payday when you already live on a tight budget, you will gradually find yourself sinking to the bottom of your overdraft and only getting out of it briefly every payday. This is a trap that a great many people fall into, and it contributes an unexpectedly large amount to quarterly bank profits due to the fees and interest charges on that money.
Most banks will charge a fee for going into your overdraft, and again for every time you use your overdraft, and since these fees average about $5.00 it can be an expensive habit to get into. Using your overdraft regularly can cost more than you would expect, since the interest charges and the fees can add up to a lot of money every month if you are not careful.
The interest rates on overdrafts are typically more than those charged for credit cards or even payday loans, at around 21% per month. When you consider that the US banks make more than US$30-billion a year on overdrafts, you can see how expensive they really are.
While it may be a good thing to have the overdraft protection in the event that you miscalculate on a payment or expenditure, using your overdraft protection as a regular thing is a very poor way to manage your finances. The most fiscally responsible way to own an overdraft is to never ever use it.
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