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 U.S.

Learn more about what overdraft protection is and how it works, as well as about 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 you access to funds if and when your account reaches a zero balance, up to a specified amount. This means the bank allows you 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 can't 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.

According to the Federal Reserve Bank of St. Louis, the average overdraft fee in the U.S. was $35 in 2023, which could add up to hundreds of dollars a year in charges, if used frequently. Keep in mind, though, this figure doesn't include any interest incurred on the balance.

Netspend and Overdrafts

As noted, 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.

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

Netspend offers overdraft protection to eligible cardholders through MetaBank. This feature allows you to make transactions or incur fees with amounts that exceed the balance on your card after meeting activation and eligibility requirements. Because it is optional and not automatic, you must enroll in order to activate overdraft protection on your 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 five overdraft-protection service fees per calendar month.

Netspend transactions subject to an overdraft fee are signature and PIN purchases and automated teller machine (ATM) transactions. ACH debit transactions aren't eligible for overdraft protection coverage.

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 if those things happen, their Netspend overdraft protection is automatically deactivated.

The Bottom Line

Many banks give overdraft protection, a short-term way for customers to compensate for insufficient funds. This service is also offered by Netspend, which provides prepaid debit cards for personal and commercial customers in the U.S. Because it's optional and not automatic, you must enroll in order to activate overdraft protection on your account. The card issuer allows you a buffer of $10, so overdraft protection starts when the balance goes beyond -$10.01. Netspend charges a $20 service fee for each transaction that overdraws, up to a limit of five per month. To activate Netspend overdraft protection, you must provide a valid email address and agree to Netspend's electronic delivery of disclosures and amended terms. Then you must receive deposits of $500 or more every 30 days to qualify for the service.