Understanding Overdrafts and Overdraft Protection

Imagine this - It's a chilly Saturday afternoon, and you've decided to make a quick stop at the grocery store for some essentials. You walk up to the cashier to make a purchase with your bank card only to find the transaction is declined. A pre-authorized debit payment for your gym membership has left your account balance lower than you anticipated, leaving you in a bit of a pickle.

This is where having optional overdraft protection can be helpful. It’s financial backup when you need it, saving you from the inconvenience of a declined transaction and the awkwardness of an insufficient funds message, or even the hassle of Non-Sufficient Funds (NSF) fees.

So, what is Overdraft?

Essentially, being in overdraft means you've spent more than what's available in your account, temporarily borrowing funds from the bank.

What is an Overdraft Fee?

An overdraft fee is what the bank charges each month when your account is overdrawn (when you spent more money than what was available in your account). This fee is charged once, monthly. If you try to make a transaction from an overdrawn account that will take it beyond your pre-approved overdraft limit, it will be declined. The cost for overdraft fees differs by bank, and interest charges can add up quickly, becoming significantly expensive over time. However, it is important to note that an Overdraft Fee is not the same as a Non-Sufficient Funds (NSF) fee.

An NSF fee occurs when a scheduled transaction is denied due to insufficient funds. An overdraft fee occurs when a transaction is approved, despite insufficient funds in your main account, by the bank covering the shortfall from your pre-approved overdraft limit, and charging a fee for the service.

What is Overdraft Protection?

Overdraft protection is an optional bank service and commonly offered with bank accounts. It acts like a safety net for when your account balance drops below $0. It’s like tapping into an extra allowance from the bank, up to your pre-approved credit limit, when you make purchases or have debits (like automatic bill payments) on your account that go over and above your current balance.

Essentially, if you’re eligible, and you choose overdraft protection for your account, you will be able to spend more than what’s in your account by temporarily borrowing funds from the bank. It’s important to note that overdraft protection comes with a monthly fee if you use it, as well as daily interest charges on the outstanding overdraft amount that you borrow.

Take this example of a monthly statement of an account going into overdraft with and without optional overdraft protection to get a better understanding of how you can help prevent NSF fees from adding up.

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What are the benefits of having Overdraft Protection?

Overdraft protection can provide you with a temporary safety net when you need it. Here’s how the Overdraft Protection Plan on the PC Money™ Account can be helpful:

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• Helps Protect Against Declined Transactions 🛡️: It can assist in steering clear of the charges (like NSF fees) that are incurred when a scheduled transaction is rejected due to lack of funds. With overdraft protection, you’re charged a monthly fee when you dip into overdraft. In addition, you must pay interest charges on the outstanding overdraft amount until your account balance is back above zero. It also helps ensure that essential payments like rent, utility bills, and other services get paid in a timely manner.

• Convenience ✌️: Knowing that your transactions are covered even, if your account balance is low, can provide a sense of security, especially in emergency situations.

• Flexibility of Your Finances 🧘‍️: It acts as a cushion for times when you temporarily need a little extra money. You can always opt out of optional overdraft protection at any time, as long as you’ve paid any overdraft balance that you owe.

What does Overdraft Protection cost?

Now that you know about all the ways that overdraft protection can support your financial wellbeing, it’s important to know the specifics to help determine if it’s the right solution for you. Optional Overdraft Protection for the PC Money™ Account carries a charge of $5 a month, and the charge is only incurred in months where your account is in overdraft. That can end up being significantly less than multiple (or even one) NSF charges you may experience without overdraft protection. In addition, you will also be charged an annual interest rate of 19%, calculated daily and charged monthly. This is only applied to overdrawn balances until the amount owing is paid back in full. Remember, you can easily request to opt out of overdraft protection at any time, as long as you’ve settled your outstanding balance.

It’s also important to note that overdraft protection is only available if you’re approved for it. You may be eligible for Overdraft Protection for your PC Money™ Account if your account is in good standing, and you are a Canadian resident, of legal age or older in your province.

If you’re eligible for optional Overdraft Protection, you will be able to apply for it from your PC Money™ Account online account dashboard.

Ready to find out if you’re pre-approved for Overdraft Protection? Sign-in to your PC Financial® mobile app or online account (opens in a new window) and follow these steps:

1. Select Accounts.

2. Choose your PC Money™ Account.

3. Select Overdraft Protection.

4. If eligible, complete your Overdraft Protection enrollment.

To learn more about Overdraft Protection for the PC Money™ Account, explore further on our website (opens in a new window).

And there you have it - your financial parachute is deployed, helping to provide a safety net when you don’t have sufficient funds in your PC Money™ Account to cover your day to day expenses. So, whether it’s an unexpected hiccup at the grocery store or any other financial twist that life surprises you with, overdraft protection can be a good short-term solution!