Can anyone tell me how bank overdrafts work?
There are two types. Overdraft Protection: You link your checking account to another account (like a Money Market account). If you overdraft your checking account, the bank will transfer money out of your Money market account to cover it. The problem is, they charge a fee every time they transfer and, they will transfer for every check that comes in after the money in the account is gone. It will keep your checks from bouncing, but it can get expensive. Overdraft Courtesy: Here the bank offers to cover your shortage as a “courtesy”. The problem is, this is considered a loan that you must pay back and they charge a fee every time they have to cover you. Again, it will keep your checks from bouncing, but it’s expensive.
