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Home >> Accounts >> Checking Accounts
Overdraft Protection and What is Available
With regard to the "overdraft privilege" that my bank offers and has offered for over two years now, they said they had to change the way the balance reads online due to change in a regulation. While my total balance does not reflect the "overdraft privilege" it is there technically, and overdrafts are to be paid at the banks discretion and applicable fees (overdraft/uncollected funds) apply.
My question is, if the funds are there at the banks discretion, why does it not reflect in my online banking? Will this privilege soon become obsolete? I appreciate knowing that if I am in trouble, or an emergency that there are funds there for me, when it doesn't show on a statement it scares me into thinking that it is not there anymore. What's happened?
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 The regulations did change effective mid-2006. Your bank statements could have changed earlier, during the voluntary implementation period. Banks offering overdraft protection had to change practices and be more consistent across the banking industry.
First, there are overdraft protection programs (ODP) such as you discuss and lines of credit. The ODP is paid at the banks discretion. That means that if a check is presented for payment on your account and you don't have enough money to pay it, they have the option to pay it for you or return it. They may have a process for this taking into consideration how often this happens, do you have direct deposit and if so, when do they next expect it and what is an average amount, among other things, but the choice is completely theirs. If they opt not to pay it, there isn't much you can do. Consumers shouldn't count on this to always be there. If your bank discontinues the program they'll likely tell you about that, but in no case are they guaranteeing payment of all your checks. It is really meant to help you on occasion and when there might have been a mathematical error in your checkbook register.
If you want guaranteed funds you can count on, you should look for a line of credit. Like a credit card balance, this is an amount of credit that has been given to you, for your use when you need it, based on your credit qualifications and for a stated period of time. This amount would be reflected on your statement. Many of these lines are accessed when your checking account is overdrawn. Say you have $200 in your account and you write a check for $347. Your line would be drawn on when the check is presented. Some lines transfer only the amount needed and some use increments of say $50 or $100. So in this example, either $50 or $100 would go from your line, into your checking account. Fees for both the checking account and the line of credit could apply.
Another solution many banks offer is a funds transfer feature. You put money in a savings account, earning interest, and it can be drawn on automatically when a check is presented for more than you have in that checking account. In this case you are using your own money and you have lower, if any, cost. You are either borrowing the bank's money for an ODP which is not guaranteed and generally has to be paid back in full within a few weeks or a month, a line of credit that includes interest and will have a predetermined repayment period that may better fit your budget, or you use your own money for an emergency.
Published on BankingQuestions.com 2/14/07
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