Illustration of smartphones, computer screens and chat boxes with large question mark and text: Overdraft protection.

Picture this: You recently made a commitment to yourself to exercise more. However, the closest gym to your house is 25 minutes away and you’re not really enthused about making that drive every day, so you decide to buy some workout equipment to burn those calories at home instead. You check an online marketplace and find someone local selling a used stationary bike for $300. You meet up to purchase it and write the seller a check for the listed amount, but when the seller deposited the check in the bank, your account only contained $250. In the event the check is processed, your account will go into the negative and you may be charged a fee for the $50 overdraft.

Is there anything worse than accidentally overdrawing your account? It happens — but it shouldn’t stop you from achieving your financial goals. Overdraft protection, a service offered by most banks and credit unions, is one way to avoid a negative checking balance.

Earlier this year, Ally became one of the first major U.S. banks to eliminate overdraft fees for our customers, so you might be surprised to hear us talking about overdraft protection. But this service isn’t just about eliminating fees, it’s about helping to protect you from the possible challenges of an overdrawn account.

What happens when you overdraft your account?

When you spend more money than you have available in your account, you could be charged a nonsufficient funds (NSF) fee and your attempted transaction could remain unpaid (this is sometimes referred to as a “bounced check” when it comes to physical checks or scheduled bill payments). For debit card transactions, your bank can either decline the transaction or it can choose to cover the transaction, allowing your purchase to go through, but your account balance will go into the negative and a NSF fee may be charged.

Overdraft protection services are designed to help avoid unpaid transactions and NSF fees. Many banks and credit unions will give customers the option to enroll in a program that will allow their overdrafts to be covered by a linked bank account, typically a savings account. This generally offers two benefits: avoid NSF fees and allow your purchases to go through when you have funds available in your linked account.

Keep in mind, you may still be charged a fee for the transfer (often referred to as an overdraft transfer fee) but this is typically less costly than a NSF fee. As you consider whether overdraft protection service is right for you, always weigh the cost of the service against any potential NSF fees.

How am I protected even when there are no overdraft fees?

Ally Bank’s Overdraft Transfer Service allows you to use a linked account (usually a savings account) to cover transactions when your checking account balance is running low. These services can help you avoid NSF fees (which can add up quickly) when your account goes negative. By providing a backup account for overages, you can have peace of mind knowing your transactions can be covered.

Ally Bank eliminated overdraft fees, but not the protection! Even without fees, an overdrawn account can still affect you, and often at the worst possible time. Ally Bank’s Overdraft Transfer Service automatically transfers available funds in $100 increments from the savings or money market account of your choice when you enroll, without tacking on any overdraft transfer fees.

Is there a downside to overdraft protection?

In many cases, overdraft protection may save you in the short term, but expenses can still add up over time, not to mention the added costs you might incur if your bank charges you for this service. This can be particularly difficult for those prone to overspending who may not fully understand some of the fees that may be associated with protection programs.

If you choose to enroll in any form of overdraft protection, stay vigilant and remember to replenish your savings regularly. After all, you’re saving for a reason, so make sure your “backup” account doesn’t become an extension of your checking account.

Understanding Ally Bank’s CoverDraft

At Ally, we don’t believe in charging fees for overdrafts or overdraft protection. We’ve seen just how big the impact of removing these penalties can be, and it’s just one more way that we can continue to be an ally for our customers.

As an added measure to provide our customers with better, affordable options to manage overdrafts, we’ve also introduced CoverDraft: a fee-free temporary line of defense of up to $100 for accidental checking account overdrafts. This covers most transactions (debit card purchases, cash back from merchants, automatic payments, transfers initiated at other institutions, and checks or transfers you initiated before overdrafting), but some transactions aren’t covered  (sending money via Zelle® or wire transfer, ATM withdrawals and online transfers between Ally Bank accounts).

With CoverDraft, if you over overdraw your account, you’ll have 14 days to raise your account out of the negative and your next deposit will automatically apply to the negative balance (with no hidden fees or interest, ever).

CoverDraft acts as a safety net. Keep in mind, it’s not a line of credit or a guarantee. If your purchase isn’t covered for any reason ( let’s say the transaction exceeds your CoverDraft limit, for example), it will be declined – but we’ll never charge you an overdraft fee.

Alleviate life’s stressful money moments

Mistakes happen, but an unexpectedly low balance shouldn’t stop you from living your life. The right protection can keep one money mistake from snowballing into hardship or a headache. Ally Bank’s Overdraft Transfer Service and CoverDraft Service can give you peace of mind and keep you moving forward with a banking partner you can trust to simplify your life.

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