Everyday Banking · session 3 of 6 · 25 min

Overdraft, Before It Happens

Explain what an overdraft is and what one costs.
Choose an overdraft setting on purpose instead of by default.

An overdraft is the bank paying a charge your balance cannot cover, and then charging you a fee for the loan you did not ask for. One Ⓛ4.00 coffee can cost Ⓛ39.00 when a Ⓛ35.00 fee rides along.

For everyday card purchases, overdraft coverage is a choice. Say no, and a purchase your balance cannot cover is simply declined — embarrassing for a moment, free forever. Say yes, and the purchase goes through with a fee attached. You can change your answer whenever you want.

Your balance is Ⓛ12.00 and you swipe for Ⓛ20.00 of groceries. Which outcome costs less?

Pick your answer first, then open it.

The card is declined; I pay with something else or put two items back

✓ Declined costs Ⓛ0.00. It is the cheaper outcome every single time, and it is the default if you never opted in to coverage.

The bank covers it — smoother in the moment

Smoother, and the Ⓛ20.00 of groceries becomes Ⓛ55.00 with a Ⓛ35.00 fee. The moment of smoothness is the most expensive thing on the receipt.

You decide to keep a Ⓛ100.00 cushion in checking that you treat as zero. Your app shows Ⓛ143.00. How much do you have to spend, by your own rule?

Work it out, then check

Ⓛ143.00 minus the Ⓛ100.00 cushion is Ⓛ43.00. The cushion is a fee you pay once, to yourself, instead of over and over to the bank.

This week

Find your account's overdraft setting this week. Write down what it is set to now, and decide — on purpose — whether that is what you want.

Next in Everyday Banking: Reading a Statement Line by Line →