Overdraft Fees – Changes You Should Know About

I recently got a notice from my bank informing me that the laws have changed and I have to choose to “opt-in” to Overdraft Protection on my checking account.

When I read that, I got up and danced a jig for joy.

Why, you ask?

Overdraft Fees are the bane of my existence. They are the bane of everyone’s existence, as far as I can tell. When you run out of money in your account–whether on accident (you transferred money the wrong way), or because you’re living paycheck to paycheck and overspending your means–the bank “rewards” you with a fee to take more of the money you don’t have. And, to top it all off, they would organize it so that the big purchases would go through first, so you would overdraw on the little stuff.

They always told me that they were doing that to “protect me” to make sure that my rent got paid on time, or whatever, but invariably, in my case, the little purchases would have gone through fine and the big purchase would have been the only one to overdraw the account IF they had done it the other way around. One way gets them more money, the other doesn’t… I’m not saying banks are out to get you, but which way would you do it if you were in business to make money?

In any case, the point is, they changed the rules.

The Overdraft Situation Before:

Overdraft Protection (read: Fees) were par for the course. If you ran out of money, the bank would still allow transactions to go through for the low, low price of $30 – $36 per overdraft.

The Overdraft Situation Now:

You have to opt-in to Overdraft Protection, which means that you have to authorize the bank to allow transactions to go through when you don’t have enough in your account. If you don’t opt-in, your transaction is simply denied, and you have to figure out a different way to pay, or to go without whatever you were trying to buy.

You also have the option of linking a secondary account (another checking account, a savings account, a credit card, etc.) to the primary account to act as a buffer in case you do overdraw, which is a good idea in any case.

Important Note: The changed in overdraft protection ONLY apply to debit and ATM transactions. I’m not sure about online transfers, but checks can still bounce. I don’t know many young people who still use checks (other than myself) but it’s worth noting.

Further Reading:

  1. The Huffington Post — “Overdraft Protection Expires: No More Overdraft Fees Without Opting In”
  2. Bankrate.com — Summary of Overdraft Protection Act
  3. Creditcards.com — A Guide to the Credit Card Act of 2009

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