If you ask the banks, overdraft protection is an essential financial service that you need if you want to be fully protected against the unexpected. With it, you won’t be penalized if you attempt to withdraw more cash than you have in your chequing account — like when you attempt to pay a utility bill, forgetting rent just came out of your account. Overdraft protection allows the transaction to occur, even if you don’t have the cash; the bank covers the difference.Does this mean overdraft protection is free money when you’re short on funds? Far from it. Overdraft protection comes as an additional charge on top of your usual maintenance fees, and you’ll pay even more if you use it. 
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What is Overdraft Protection?
An overdraft protection plan is a form of insurance that protects you against overdrawing your account. And like your auto or home insurance policies, overdraft protection comes with a monthly premium — usually around $5.If you enroll in this service, your bank helps you when you overdraw your account in one of two ways.The first is giving you what is essentially a personal loan; you will pay back what the bank has to pitch in to complete the transaction. You’ll pay them back with interest and an overdraft fee.The second is linking another account to cover the amount you overdraw. If your chequing account falls short of your transaction, your bank can transfer money from a linked savings account, credit card, or line of credit to cover the difference. The usual interest and finance charges apply to these credit accounts, and you might pay a charge for the transfer. Even if with protection, your costs can pile up. However, it may help you avoid the following penalties:
- Declined transactions.
- Late payment fees.
- Non-sufficient funds (NSF) charges.
Skip the Fees and Avoid Overdraft
Life can throw you some mean curveballs, making it tough to have enough money in your chequing account. But with some organization and hard work, you can avoid overdrawing your account entirely — eliminating the need for overdraft protection in the first place. Here’s how:
Create a Budget
Budgeting can help you set spending limits to ensure you always retain enough cash in your account for essential bills. This spending plan can help you avoid splurges that put you at risk of overdrawing your account.
Skip the Middleman
The second payment option — the one that links a line of credit to your chequing — charges you for a service you can do on your own. The bank takes its cut to make draws against your line of credit to offset your bank balance. You can cut out this intermediator by transferring the funds on your own. If you don’t already have a line of credit, check out a website like Fora. You can find out how a line of credit from Fora works with a few clicks of your mouse.
Monitor Your Account
Let’s be honest — if you do have to rely on a line of credit to avoid overdraft, doing it yourself is less convenient than if you have overdraft protection. That’s because you need to know if you can afford an expense out of pocket or need to rely on credit before you make the payment. To figure out what payment method you need, you’ll have to monitor your account balance throughout the month.Taking on this task can save you a lot of money in overdraft plans, fees, and interest. Keep this in mind the next time the banks offer you a protection plan.