- Debit Card Overdraft Fees to End - Salvatore Vuono
Thanks to new rules passed by the Federal Reserve, banks will no longer automatically charge overdraft fees on debit and ATM cards. Unless the account holder wants them to. It’s called “opting in.”
Overdraft Protection No Longer Always Automatic
Beginning in July 2010, banks required account holders permission to allow charges to go through that exceed the existing account balance. Which sounds awfully reasonable of them. After all, in 2009, banks racked up an estimated 38 billion dollars on overdraft fees. Currently, three quarters of all banks automatically sign up customers for overdraft protection.
Overdraft fees can add up quickly. While initial fees can average about $30 per transaction, fees go up at some banks for each additional transaction. Other banks may offer a grace period of several days before the fees kick in.
The Fed rules only apply to overdraft fees on ATM and single debit transactions. Banks may, however, automatically enroll customers in overdraft protection for personal checks and automatic monthly bill payments.
Bank of America to Stop Offering Certain Overdraft Protection
Bank of America decided it would no longer charge overdraft fees for debit card purchases. According to the March 13, 2010 New York Times, B of A, based on feedback from customers, no longer gives its customers the option to sign up for overdraft protection for debit card purchases. It is not clear if other banks will follow Bank of America’s lead.
Pros and Cons of Opting In for Overdraft Protection
For account holders whose banks will offer the opt in options, consider these pros and cons:
Pros of overdraft protection for ATM and debit card purchases:
- No denials at point of sale or withdrawal
- Emergency funds available
Cons of overdraft protection
- Expensive fees, sometimes greater than the amount of the original purchase
- Alternatives exist to prevent higher overdraft fees from kicking in
Monitor All Bank Account Balances
The bottom line, of course, is that bank account balances should not be a mystery. And while this sounds perfectly logical, there are nuances to consider. Ask the bank how long it will take them to post a deposit or debit, as this can take several days in some cases. And always use the available balance, not the ledger balance, to determine the amount of funds available for withdrawal.
Many banks currently offer customers the option of linking their checking accounts to savings or other accounts at the bank to help prevent debit card overdrafts. The best way to prevent overdrawing is to always know what’s in every account. This can’t be emphasized enough.
Fortunately, with the revised regulations, withdrawing money that doesn't exist in the account could become a thing of the past.
Sources:
Lieber, Ron. “Overdraft Protection: Why Bother?” New York Times 13 Mar. 2010, sec. B: 1.
Liberto, Jennifer. “Fed Cracks Down on Overdraft Fees.” Nov. 2009. cnnmoney.com. 19 Mar. 2010. http://money.cnn.com/2009/11/12/news/economy/overdraft_fees/index.htm
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