Balance Protection

Written By
Paul Tracy
Updated July 29, 2021

What is Balance Protection?

Also called overdraft protection, balance protection is a feature on a checking account that prevents a customer from bouncing checks.

How Does Balance Protection Work?

A bad check is a check written on an account that doesn't exist or that has insufficient funds to cover the amount of the check.

For example, let's assume that John Doe has $1,000 in his checking account today. He goes to the mall and writes a check for $1,250 at a furniture store. Because there are insufficient funds to cover the amount of the check, John is writing a bad check.

When the furniture retailer attempts to deposit the check, the furniture retailer's bank (Bank ABC) will present the check to John Doe's bank for payment. John Doe's bank will then either pay the check (which might occur if John Doe has balance protection at his bank) or "bounce" the check by returning it to Bank ABC without payment. Often, banks stamp the check itself with a large "NSF" stamp (which stands for "nonsufficient funds"). Typically, Bank ABC will charge the furniture retailer a fee for presenting a bad check, and John Doe's bank will charge John Doe for writing a bad check. The furniture store will also likely charge John Doe a fee for the bad check. Balance protection prevents this from happening.

Why Does Balance Protection Matter?

In most states, writing a bad check is at least a misdemeanor, with the consequences growing depending on the state, the amount involved, and whether the transaction crosses state lines. Most bad checks are simply oversights by consumers, so even if the police are not involved, the fees for bouncing checks can run in the hundreds or even thousands of dollars if the check writer is particularly disorganized. For this reason, it's important to have balance protection.
 

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Balance Protection.
Be the first to ask a question

If you have a question about Balance Protection, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Balance Protection, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Balance Protection

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms