Back to Assignment

Attempts This attempt is in progress.

5. Checking accounts - The value of overdraft protection programs

How Does Overdraft Protection Work, and Why Is It Valuable?

An overdraft occurs when an account holder attempts to withdraw funds or to make a payment via a check or debit card from a checking account with an insufficient balance.

An account holders failure to practice good checking account management can result in enormous fees being levied against the account, a loss of his or her credit and general reputation, and an unwillingness of financial institutions to make loans or to provide other products or services.

How do overdraft protection plans work?

A. Overdraft protection plans prevent you from experiencing an insufficient funds, or overdraft, situation. In general, they do this by providing an inflow of money into your account that is at least sufficient to cover your:?

Bad checks or similar withdrawals ?

or

Insufficient funds (NSF) fees and penalties?

There are three principal arrangements that may be used to provide overdraft protection to a checking account holder: an automatic funds transfer agreement, an automatic overdraft loan agreement, and courtesy, or opt-in, overdraft/bounce protection. How do they compare?

B. The methods differ in______ (Sources and costs/uses and costs) and used to remedy the insufficient funds situation. However, they are all similar in that each______ (More / Less) than the practice of good checking account management.

Read each of the following statements, and indicate which overdraft protection arrangement is being described.

C. This program is usually provided automatically to bank customers, unless explicitly declined, and requires the account holder to practice good account management to avoid relatively expensive bank penalties. This describes: (A courtesy overdraft and bounce protection / Automatic funds transfer argument / An automatic overdraft loan agreement)

D. A potential overdraft is prevented by automatically transferring funds from the account holders savings account into his or her checking account. This describes: (A courtesy overdraft and bounce protection / Automatic funds transfer argument / An automatic overdraft loan agreement)

Please answer A / B / C / D