Advice to help you avoid the hassle of paying overdraft fees

It may be better than a bounced cheque, but using overdraft protection too often can also be costly. Here's advice to help you avoid the hassle of paying overdraft fees.
An overdraft fee is the amount charged by your financial institution when you don’t have overdraft protection, and you try to withdraw from your account more money than is available. In that event, overdraft protection lets you avoid embarrassing NSF charges or declined transactions. Instead, the bank covers you—but at a cost. Here's some advice to help you avoid that hassle.

First of all, ask at your bank about getting overdraft protection if you don't already have it. Although overdrawing your account is to be avoided, it can save you when you’re in a pinch. Why? It ensures that you always have the necessary funds to cover your cheques, pre-authorized payments and debit card transactions. Mind you, the best solution to avoid the hassle of having to pay overdraft fees is to start each month by checking your account: is there enough money in your account to cover your monthly expenses?

• By transfer of funds. When there’s not enough money in your chequing account to cover a cheque or pre-authorized payment, the bank draws the missing money from another account you hold at that financial institution. For example, it could transfer funds from your credit card, savings account, or personal line of credit.
• By monthly fee. This kind of protection is useful for people who write a lot of cheques. In most cases, the fee is to be paid every month, whether there are overdrawals or not. Interest is charged on overdrawn amounts.
• By transaction fee. Each time you overdraw, up to an agreed amount, you will be charged an overdraft fee plus interest on any overdrawn amounts.

It all depends on the financial institution and your credit standing.

• Monthly protection. For about five dollars a month, your withdrawals are covered up to an agreed amount, plus you pay interest on the overdrawn amount. The fee may be applicable in any given month where the account was overdrawn, or the bank may extract the monthly fee even if your account was not overdrawn.
• A transaction fee. A fee of about five dollars, plus interest on the overdrawn amount, is charged per transaction in the red. Rates vary, check with your financial institution.
• Free overdraft protection. Some banks offer this service for clients with good credit standing.

Overdraft protection is meant to be a “just in case" solution. If you need more money to be available on a monthly basis or if you’re considering a major purchase, opt for a line of credit or a personal loan. Talk to the credit and loan officer at your bank or financial institution to find out which product best suits you.