Overdraft Fees and Overdraft Protection

Most people have been faced with unwanted overdraft fees at one time or another. It’s not as though balancing a checkbook is so difficult, but the sad truth is that most of us just overspend.

However, understanding the way overdraft protection works might save you a lot of unwanted fees. After all, banking fees and protection features change and it’s in your best interest to understand how they work.

Before debit cards, there was not much choice but to write a check to get the cash you needed. If you didn’t have the funds in your account, that was that. And if you wrote a check to a merchant and the check bounced, you had a fee to pay to the merchant and to the bank. That rule still applies.

Overdraft protection came about when banks realized it made their customers look bad and caused animosity toward the bank. They began offering overdraft protection that would cover the overage up to a certain amount and the customer would pay the bank a fee -- $25 to $40 in most cases. This saved the customer embarrassment, plus it provided the banks with extra revenue.

Then along came debit cards causing a major snafu with overdraft fees. Because debit cards are used for so many different kinds of purchases it became even more difficult to keep a balanced account.

The latest trend seems to be that banks will no longer charge overdraft fees on debit card transactions. If the funds are not there, the transaction is simply denied. And there are new banking regulations requiring an opt-in from consumers before banks can charge overdraft fees on debit cards.

But overdraft fees are still with us. So the best advice and moral of this story is to keep track of your spending and balance your account regularly. If you’re unfamiliar with how your bank or credit union provides overdraft protection, have a conversation or visit their website to get up to speed on the details.