What is Overdraft Protection?

Overdraft protection is a service where your bank covers transactions even when you don’t have enough money in your account.

Instead of a declined purchase or bounced payment, the bank lets it go through—then charges you fees and/or interest for going into the negative.

A Simpler Option: KOHO Essential

If you’d rather avoid worrying about going into overdraft in the first place, with KOHO Essential:

• It has a low monthly plan fee that can be waived when you set up direct deposit or add +$1,000.
• Use a prepaid Mastercard® for groceries, bills, subscriptions, and travel.
• Grow your savings with a 2% interest savings rate on your entire balance.
• Earn 1% cash back on groceries, eating & drinking, and transportation.
• You can subscribe to Credit Building for $10/month, it's an affordable way to build your credit history.
• Enjoy unlimited transactions and free e-transfers (never worry about fees when sending money to someone again).

How Overdraft Protection Works

With overdraft protection, your bank might:

• Let a tap, bill, or pre-authorized payment go through even if your balance is too low
• Cover the shortfall from a linked savings account, line of credit, or overdraft limit
• Charge you fees and/or interest until you bring your balance back above zero

It can save you from a declined transaction or NSF fee, but it’s still a form of borrowing.

Pros and Cons of Overdraft Protection

Pros:

• Helps avoid bounced payments or embarrassing declines
• Can be useful for rare, small shortfalls

Cons:

• Fees and interest can add up quickly if you use it often
• Makes it easier to spend money you don’t really have
• Some people treat it like extra spending room, which can lead to ongoing negative balances

Overdraft protection is safest when it’s a backup, not something you rely on every paycheque.