An overdraft is when you don’t have enough money in your checking account to pay for a purchase, but your bank or credit union covers the payment anyway. When that happens, the bank often charges you a fee and makes you pay back the overdrafted amount — this is overdraft coverage.
Let’s face it — anyone can make an honest mistake. We may forget to make a deposit or forget that we paid for a particular item. There are a number of reasons why account holders may make a miscalculation or minor budget oversight — even for the most financially savvy among us. Overdraft coverage acts as a safety net for account holders.
As a checking account holder, you can add or remove overdraft coverage during the life of your account. Overdraft coverage can be beneficial for new account holders, such as students who are on a budget and learning to responsibly manage their money — or for those who rely on payday to replenish their accounts.
Signing up for overdraft coverage can spare the embarrassment of a declined purchase, and it can also help to cover an emergency purchase when in a pinch. Of course, remember that each overdraft incurs a fee, so try your best to avoid them if at all possible.

How to avoid overdraft fees

  • Sign up for account alerts, such as payment reminders and low-balance alerts
  • Frequently monitor your account for unusual activity or spending
  • Keep some extra cash in the checking account, if possible, to avoid a low balance
  • Sign up for account services that automatically replenish a low-balance account
  • Opt out of any overdraft coverage services

Adding overdraft coverage to an account is a practical and relatively inexpensive safeguard against potentially hefty overdraft fees. Before adding this optional coverage to an account, you should scrutinize your spending habits and account management skills to determine if you truly need this added protection.
If you tend to keep a low balance in your checking account and don’t keep a close eye on spending habits, then overdraft coverage could be for you. If you’re fortunate enough to keep a cushion of cash in your checking account and make it a point to routinely monitor your account, then overdraft coverage may not be necessary.

To learn more about the overdraft coverage options available at Ascent CU, click here.

Article adopted from creditkarma.com