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How do overdrafts and bounced checks happen?
When you write a check, withdraw money from an ATM, use your debit card to make a purchase, or make an automatic bill payment or other electronic payment for more than the amount in your checking account, you overdraw your account.
Your credit union has the option to pay the amount or not. If they pay, even though you don’t have the money in your account, you may be charged an "overdraft" fee. If your credit union returns your check without paying it, you may be charged a "bounced-check," or "nonsufficient funds" fee. And the person or company you wrote the check to—a store, landlord, or the phone company—may charge you a "returned-check" fee in addition to the fee your credit union charges you.
How can you avoid overdraft and bounced-check fees?
The best way to avoid overdraft and bounced-check fees is to manage your account so you don’t overdraw it.
Some simple steps include:
Sometimes mistakes happen
If you do overdraw your account, deposit money into the account as soon as possible to cover the overdraft amount plus any fees and daily charges from your credit union. Depositing money into your account can help you avoid additional overdrafts and fees.
What are "courtesy overdraft protection," or "bounce coverage" plans?
Many credit unions offer "courtesy overdraft protection" or "bounce coverage" plans so your checks do not bounce and your ATM and debit card transactions go through. With these plans, you’ll still pay an overdraft fee or a bounce coverage fee to the credit union for each item. But you will avoid the merchant’s returned-check fee and will stay in good standing with the people you do business with.
How much do courtesy overdraft protection, or bounce coverage, plans cost?
Plans vary, but most credit unions charge a flat fee (often $35) for each item they cover. And many set a dollar limit on the total amount your account may be overdrawn at any one time. For example, the credit union might cover overdrafts up to a total of $300, including all the fees.
Suppose you forgot that you had only $15 in your account and wrote a check for $25, used an ATM to get $40 cash, and used your debit card to buy $30 worth of groceries. In these 3 transactions you’ve spent a total of $95—and overdrawn your account by $80 ($95 - $15 = $80). How much will your forgetfulness cost you?
If you have a courtesy overdraft protection plan, your credit union may decide to cover all 3 transactions. And each of the 3 overdrafts will trigger a fee. You will owe your credit union the $80 that you spent even though it wasn’t in your account, plus the 3 overdraft fees. If your overdraft fee is $35 per overdraft, you will owe your credit union $185: $80 + $105 (3 x $35).
What are some other ways to cover overdrafts?
Credit unions may provide other ways of covering overdrafts that may be less expensive. Ask your credit union about these options before making your choice. You may be able to:
The choice is yours
Consider these ways to cover your overdrafts:
*These costs are only examples. Ask your credit union about its fees.
What do you need to know about courtesy overdraft protection, or bounce coverage plans?
What should you do if you have a problem or complaint about courtesy overdraft protection, or bounce coverage plans?
If you have a problem, first try to resolve it directly with your credit union. If you are unable to resolve the problem, you may want to file a complaint with one of the state or federal agencies responsible for enforcing consumer banking laws.
For more information regarding federally chartered credit unions contact:
National Credit Union Administration
Office of External Affairs
1775 Duke Street
Alexandria, VA 22314-34281 (703) 518-6330
For state-chartered credit unions, contact your state’s regulatory agency.