Thanks to new rules you’ve been able to opt out of over draft protection. Effective August 15th you’ll need to opt-in if you want over draft protection for pre-existing accounts.
Banks have traditionally charged an overdraft fee when there wasn’t enough funds in your account to cover a purchase. For example, someone in the family makes a purchase and forgets to check the account balance or inform their spouse beforehand. The result is an account overdraft and a fee of $40 with some banks. But before noticing the overdraft another one occurs for an ATM withdraw or perhaps when a bill is paid. Now another $40 fee is stacked on top of the initial fee and they just keep going until you have enough money in the account to cover transactions [There is typically a limit to the amount of fees charged per day].
How do the new overdraft protection rules work?
Banks have stated this is a service they offer and it’s to the customer’s benefit. In the past, you were automatically enrolled in such overdraft protection when opening your checking account. Here’s how it works now according to an article from Money magazine’s personal finance blog (More Money):
Under the changed rules — applicable to new accounts opened after July 1, and effective August 15 for pre-existing ones — attempted debit-card payments with insufficient funds will just be declined, unless users opt into the previously-automatic coverage, which banks liked to call “courtesy overdraft protection.”
Flexibility
The bottom line is you now have flexibility by having a choice in the matter. Banks used to make the choice for you and now you decide if you want this service for ATM and debit card transactions. Again, you must choose to opt in.
Earlier this year, I chose to opt out of overdraft protection. Why did I do this? I didn’t see any need for the bank to provide me this service and charge me outrageous fees for making a personal mistake. Yes, they are provding a service. They save you the embarrassment at the register when you don’t have sufficient funds, or give you the money when you really needed it. But, for me it boils down to financial responsibility. I need to know the status of my account at all times and be active enough in managing my finances to avoid such over withdrawals.
But, we all know accidents do happen…
How do you protect yourself from overdrawing when you don’t opt in?
The More Money blog provides a few tips they found on Credit.com. I liked several of these and have also added a few of my own.
- Maintain a budget and track your spending. If you’re tracking your spending each day by budget category you’ll know how much money you have left for groceries, entertainment, etc.
- See if your bank will let you link your checking to a savings account. Although, if they have to transfer money from your savings you may still incur fees.
- Carry a credit card with you. If you’ve made a mistake you can always fall back on your credit card. Just make sure you can pay the purchase off within 30 days.
- Sign up for text message alerts if your account falls below a certain threshold you set.
- Keep some extra money in your account to protect against over withdraw. Of course, you can’t spend this money.
- Manage your account through budget software and leverage the mobile version to keep an eye on new transactions.
As you can see, there are plenty of ways to help insure you don’t overdraw you account. What about you? Do you plan to opt in, or do you watch your spending and account close enough to avoid an overdrawn account?
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