Many of us, at one time or another, have had the misfortune of accidently trying to spend more than we have in our account. When this occurs, one of two things happen. Your card will either be denied, or it will go through, thanks to the overdraft protection on your account. While the latter saves you some embarrassment, it will also cost you a fee.

It’s not only individuals that suffer from this problem either, businesses also can fall victim from time to time, too. Thankfully, with overdraft protection, you don’t need to embarrass yourself in front of a big client. But what exactly is overdraft protection and is it good or bad?

This article is going to take a closer look at overdraft protection, what it is, some benefits and drawbacks of it, and more. By the end of this article we hope you will know enough about overdraft protection to decide if it is right for your business or not.

What is Overdraft Protection?

Overdraft protection is basically a line of credit that a bank will offer individuals or businesses. So if you are to spend more on a purchase or payment than you have in the account, the bank will pay the rest (as long as it is within your overdraft protection limit) and will then charge you a fee for doing so.

The fee is generally around $35 or so, but can vary depending on your account type and the financial institution you are working with. When it comes to the viability of overdraft protection, there are people on both sides of the argument. Some feel that they are a great addition and save them from a ton of embarrassment, while others feel that the fees are high and with so many of us making more debit purchases than ever, tracking your checking account (to make sure you don’t get into overdraft territory) is becoming difficult.

Pros and Cons of Overdraft Protection

As you could imagine, due to the arguments about viability, there are a few pros and cons when it comes to overdraft protection, and we’ll take a look at them now. As far as pros, there are a couple that are immediately recognizable. Overdraft protection prevents your business or personal card from getting declined, which is embarrassing, especially in front of customers, partners or suppliers.

Another pro when it comes to overdraft protection is that it can protect your business between payments. Getting a loan is hard, and while overdraft shouldn’t be treated like credit, it can help you get by in a pinch if need be. It can also help to have overdraft protection for emergencies, you may never actually use it, but at least it is there if you need to.

On the other hand, however, there are also a good amount of cons associated with overdraft protection. One big one is that it can encourage overspending. Yes, it’s convenient, but it can make it more difficult to spend according to a plan when you have this extra money sitting next to your account that you can use. Another con is the fact that most of the fees are quite high, at around $35 a piece, on average. So if you dip into your overdraft 3 times in one day by accident, it’ll cost you over $100 to simply make the transactions.

In conclusion, overdraft protection can help save you and your business from very embarrassing situations, but that comes with a price. There are people who love overdraft protection and those who hate it. Whether you use it or not is up to you, but we hope this article has helped you learn and understand a little more about what it is. Of course, if you want to learn more, the internet is full of helpful guides and information on the topic.

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