Overdraft protection is an optional checking account feature to help consumers prevent returned checks and overdrafts on their checking accounts. By signing up for this service, consumers allow available funds to be automatically transferred from their savings account, line of credit or other designated account to their checking account should it be overdrawn. So instead of getting charged a bounced check fee (or insufficient funds fee) to your financial institution and a returned check fee to the retailer, the overdraft protection feature will transfer the money into your account.
You’ll need to check with your financial institution about limits and fees associated with this service. Many times, there are different limits on the dollar amount that an overdraft protection plan will cover and many financial institutions will still charge an account-to-account transfer fee, although it is usually much less than the bounced check fee. Also, you may have your privileges revoked if you frequently write checks in excess of your available balance.
The main benefits to having overdraft protection is that the party you wrote the check to is not aware you were short on cash when you wrote the check and you can avoid the insufficient funds fee from your financial institution and returned check fee from the retailer.