How Does NetSpend Overdraft Protection Work?

We all come to a point where we may need a little extra cash. Maybe you have an unexpected financial emergency. Or perhaps you took out too much money and forgot about that car insurance payment coming out two days before your next payday. Little emergencies come up every now and then, meaning your other financial obligations may be pushed back, or worse, they may bounce. You may think you're out of luck, but there may be an option to help you out.

Many banks offer overdraft protection, a short-term solution customers can use to compensate for insufficient funds. This service is also offered by Netspend, a provider of prepaid debit cards for both personal and commercial customers in the United States. But how does it work?

Read on to learn more about what overdraft is and how it works, as well as Netspend's overdraft protection policies.

What Is Overdraft Protection?

Overdraft protection is a credit facility added to an account such as a checking or savings account. It gives the account holder access to funds if and when the account reaches a zero balance up to a specified amount. This means the bank allows the customer to continue using the account even when there is no money in it.

In essence, overdraft is a short-term loan extended by the bank to the account holder. It must be paid back, though, by making one or more deposits into the account to bring the account back above zero. Just like any other credit product, overdraft protection cannot be added to an account without authorization from the customer.

Banks generally charge interest for the average balance that remains in overdraft at the end of each month. Most accounts charge a lower interest rate than a credit card, making it a more affordable option in an emergency. Customers also incur a monthly fee for having the service on their account, even if they don't use it.

Because of the nature of the service and the fees involved, overdraft is meant to be used for emergencies only and is not intended for everyday use. According to Bankrate, the average overdraft fee in the U.S. was $33.47 in 2020. That's a total of almost $402 each year just for having the service. Keep in mind, though, this figure doesn't include any interest incurred on the balance.

Netspend and Overdraft

As noted above, Netspend provides prepaid debit cards for both personal and commercial clients. The company was founded in 1999, and, according to its website, serves 68 million underbanked consumers—especially those who don't have a bank account and people who prefer different financial services options.

Consumers can load their debit cards with cash, link them up to bank accounts to do transfers, or opt to have their paychecks, income tax refunds, or other benefits deposited directly to their Netspend accounts.

Netspend offers overdraft protection to eligible cardholders through MetaBank. This feature allows the account holder to make transactions or incur fees with amounts that exceed the balance on his card after meeting activation and eligibility requirements. Since it is optional and not automatic, a customer must enroll in order to activate overdraft protection on their Netspend account.

Here's how it works. Netspend allows customers a buffer of $10, which means overdraft protection kicks in when the balance goes beyond -$10.01. The service fee Netspend charges is $20 for each transaction that overdraws a customer's account, with a maximum of three overdraft protection service fees per calendar month. Netspend will not allow any transactions—automatic payments, pin pad transactions, signature purchase transactions, or automated teller machine (ATM) transactions—without the overdraft protection service in place.

Activation and Eligibility

To activate Netspend overdraft protection, a customer must provide a valid email address and agree to Netspend's electronic delivery of disclosures and amended terms to the contract associated with signing up for overdraft protection. Additionally, a Netspend customer must receive deposits of $500 or more every 30 days to qualify for overdraft protection.

If a customer overdraws his account balance by more than $10, Netspend sends a notification about the overdraft. The customer has 24 hours to replenish the account to restore its balance to more than $10. If a customer fails to act on the notice, Netspend charges an overdraft protection service fee of $20.

Overdraft Protection Deactivation

If a customer fails to receive deposits of at least $500 every 30 days, Netspend cancels the overdraft protection, meaning the customer must go through the application steps again. However, if a card account has a negative balance for more than 30 days three times or for more than 60 days at one time, the overdraft protection will be permanently canceled.

Netspend customers should be careful not to delete their email addresses or withdraw consent to receive electronic disclosures because their Netspend overdraft protection is automatically deactivated.