Using
credit card for overdraft protection | | By
Dana Dratch • Bankrate.com |
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It's a little known industry perk: If you have a checking
account and credit card with the same institution, you may be able
to link the two and use your credit card as overdraft protection.
Whether you want to could be another issue.
Overdraft fees have always been a source of
ire for consumers. A simple math error, a check cashed "too soon" or
a forgotten, prearranged electronic payment can result in a fee that usually runs
from $20 to $35 for each transaction. And if you have a lot of traffic in your
account -- multiple checks or cash card purchases before you set things right
-- those fees can multiply.
Traditionally, institutions offer several ways to
limit fees and make sure obligations are paid any time the balance
dips below zero. Many times banks or credit unions will allow customers
to apply for a line of credit, which is then tapped if the account
balance hits the red zone or they often can link a checking account
to a savings or money market account. In that case, money from savings
will be funneled into checking if the checking account balance goes
below zero.
Some consumers have another
option: plastic. "It's a good idea, assuming the fees
are reasonable and the credit card rates are reasonable," says Jean Ann Fox,
director of consumer protection for the Consumer Federation of America.
Curtis Arnold, founder of CardRatings.com, agrees,
even as he admits the idea of using credit to backstop a checking
account makes him nervous.
"Mistakes
happen," he says. "Even the most financially disciplined folks out there
will make a mistake. "If the rates are reasonable, it's
giving you the grace period of a 20- to 25-day, interest-free loan," Arnold
says. "That could be a good thing. You've got time to get everything straightened
out before you pay." Not a new idea
Wachovia has offered the option of using its cards for overdraft protection since
1992, says Mary Beth Navarro, the institution's retail bank customer service manager. When
the card is tapped to cover an overdraft, there is a $10 fee. While the overdraft
is treated as a cash advance, the APR is the same as the credit card and any cash-advance
fees are waived, she says.
"It just gives customers another option,"
says Navarro. "Not every customer has a savings or money market
account. And it's less expensive than if you were to have an overdraft."
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