Linking Your Online Checking Account to Your Online Savings Account

Bank make a huge amount of money from their customers who are forgetful and bounce checks. While overdrafts can happen innocently enough there are ways for online banking customers to protect themselves against overdrafts. The different options vary from expensive to cheap:

Overdraft Protection or Bounce-Coverage Plans

Bank that offer this plan will not return your overdrawn checks as “insufficient funds”, but instead charge a fee for covering each check plus a daily fee for each day the account remains overdrawn. Let’s look at an example - while on vacation your account is accidentally overdrawn on 4 checks for $300 that the bank goes ahead and honors, despite the account not having funds available. When you are back in town and discover the cash flow discrepancy you also note that the bank has charged you $100 for covering the checks + another $28 on the daily charges. One simple mistake just cost you $128 in bank fees.

Linking Your Checking Account to a Credit Card

This solution is the most automatic in that the banking customer may not even know until they receive their statement that the checking account deficiency was covered by a cash advance off their credit card. At a typical $5 cash-advance fee + 20% APR this can be a costly solution as credit card companies apply payments to regular card charges before cash advances. So in the above example the customer who overdrew their account while on vacation could cost themselves $65 if they are unable to pay off their credit card balance over the next year.

Overdraft Line of Credit

Typically a line of credit involves a maintenance fee in addition to the 13 - 16% APR which acrrues immediately on the fund forwarded to an overdrawn checking account. This solution could be less expensive than the above two for frequent overdraft customers, but is impractical for a banking customer who rarely overdraws their account.

Linking Your Checking Account to Your Savings Account

Most major online banks allow you to automatically link your checking account to a savings account at the same bank or to an external account. In the above example of an overdrawn account while the account owner is on vacation, a one-time transfer between a savings account with funds available to the checking account with insufficient funds would typically cost about $5 and at some banks can be made automatically when a balance reaches a certain level. A linked checking account-savings account also allows accountholders to maximize the interest earned in both accounts by sweeping out excess funds back into savings. This is by far the best solution and protection for overdrawn checking accounts. While banks like ING Direct, EverBank, Washington Mutual Bank and others make it easy to link accounts internally and externally many local banks do not have this technology in place. Check the list of highest yielding online checking accounts at Money-Rates.com for more information about linking online checking accounts.