How finance folk use it
When you don’t have enough funds in your bank account to cover a pending payment (usually through check or recurring charge, like an auto-debit bill), your account is considered overdrawn.
Overdraft protection is a bank account feature in which the bank funds your payment when there isn’t enough money in your account so the payment can push through (and your check, if you used one, won’t bounce).
Is it good or bad?
Overdraft protection helps you out by making sure that you can still make your payment. That way, you won’t have to worry about a bouncing check or a missed payment deadline, and all the penalties that come with them.
Some banks allow you to nominate a second account or credit card for you to get funds from. Others will loan you the money instead, but you will need to pay interest on that amount. There may also be other fees involved, so make sure to learn all the details if your account has this facility.
What it means for you
If you use your bank account to issue checks or use auto-debit for paying bills, having overdraft protection can give you confidence that you won’t miss a payment, even if you forget to fund it or your account doesn’t have enough money in it.
Remember that there will be charges for using this feature, so try not to use it unless you really need to.
