Overdraft Accounts or Bounce Protection, Part One

10 Oct Overdraft Accounts or Bounce Protection, Part One

Are you one of those people who hates to balance your checkbook and waits until the overdraft/NSF notice arrives to know it’s time to put money in your bank account? You are not alone. And the banks and financial institutions are implementing programs to capitalize on our laziness. Read on

Some years ago, if you did not have sufficient funds in your bank account, banks offered overdraft protection as a loan to make up the difference between the amount of your check and the balance in your bank account. Typically the bank would add money to your checking account in increments of $50.00 or $100.00 so that you did not incur a NSF fee. You would then pay the bank back according to the terms of your overdraft loan agreement.

More recently, banks and financial institutions have offered an overdraft protection account that is tied to another account you have with the bank like a savings account, a home equity line of credit, or a credit card. The bank will pull funds from one of these accounts to pay the overdraft. You will be charged a fee but it is less than a NSF fee. In order to have this protection you must sign up for it.

Nowadays, many banks and financial institutions are offering a program called bounce protection, overdraft privilege, or some variation of one of these names. It is an overdraft privilege that is automatically assigned to your account. You do not have to sign anything.

The difference between overdraft protection and bounce protection is that you sign up for the overdraft protection and you need to have another account with the bank. It is important to note that you must sign up for the overdraft protection. Just because you have another account with the bank, you are not automatically enrolled in the overdraft protection.

Bounce protection or overdraft privilege is just the opposite. You don’t have to sign up for it to cover your “bounced” checks and it is not linked to one of your other accounts with the bank. Banks pay the check but charge you an overdraft fee of anywhere between $25.00 and $40.00. And some banks charge a daily fee, anywhere from $2.00 to $10.00 per day for every day that your account is overdrawn.

A more thorough discussion of bounce protection or overdraft privilege accounts will be discussed in part two.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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