A Guide to the New Bank Overdraft Protection Fees Rules
If you’ve visited a brick and mortar local bank or credit union branch in the past few months, you’ve probably been asked the question, “would you like to opt in to overdraft protection service?”. On the surface, ‘overdraft protection service’ sounds like something you might want. “Sure, why wouldn’t I want to be protected against overdraft charges??” was my initial line of thought. Upon closer inspection, I began to think a little differently.
Overdraft Fees: The No Permission ‘Service’ Fee
At my local bank, the kind teller made it sound as though the bank had gone above and beyond competition by offering me ‘overdraft fee protection’ in the past. In reality, they were charging me a $35 ‘convenience’ fee for covering purchases that I didn’t have enough of a balance to cover with my debit card. Up until now, banks were able to automatically enroll you into this service. Not anymore.
The Federal Reserve is beginning to require financial institutions to get your permission to enroll you in a program that covers overdrawn debit and ATM transactions for a fee. The rules took effect July 1 for new customers and will kick in Aug. 15 for existing checking account customers.
Your two options look like this:
- Enroll for ‘overdraft protection’.
- Don’t enroll for ‘overdraft protection’.
What is Overdraft Protection?
If you decide to enroll for overdraft protection, your bank or credit union will ‘save you the embarrassment’ (as many of them are phrasing it) of having your debit card declined by covering the charge that you have made. For this ‘convenience’, they will tack on an overdraft protection fee. Often times, this fee is in the range of $30-$40. Enrolling in overdraft protection often means keeping things the same way that they’ve been in regards to bank overdraft fees.
Note that the new federal opt-in requirement does not apply to checks. It only applies debit card and ATM transactions.
What if I Opt Out of Overdraft Protection Services?
Simply declining overdraft protection service is the equivalent of saying, “If this charge takes me below a $0 balance in my checking account, then don’t let the purchase go through.” You will not be able to make the purchase, but you will also save yourself the overdraft service fee.
Not only do you save the fee, but not being able to make the charge gives you a warning that you’re out of money in your account. This, in itself, is an automatic protective measure against spending money that you don’t have.
Simply ask yourself if being charged $35 to avoid getting your card turned down for a $2 cup of coffee is a service that you really want.
Playing devil’s advocate, if you have an emergency, and are willing to accept the overdraft fee, you will want to choose a bank that has a forgiving overdraft policy. I’ve highlighted a few examples below.
How Online Banks are Handling Overdraft Protection Fees
I can’t tell you how your local bank or credit union is handling overdraft fees, but I can give you an overview of how the national online players are handling them at the moment for comparison. In general, they are very lenient in comparison to the standard $35 fee that most banks have charged historically. Here’s a look at the three best policies towards overdraft fees that I was able to find for online checking accounts.
Ally Bank Overdraft Fees
Ally Bank does not charge you for an ATM or debit card overdraft (but your transaction probably will not go through). They have a $9 daily 1-time maximum fee for checks. Ally also lets you link your checking account to an Ally savings or money market account so that if you overdraw funds from your checking, it will automatically transfer from one of them. They do not charge a fee for this (most banks do). All-in-all, Ally is very consumer-friendly in these overdraft policies.
Ing Direct Overdraft Fees
Ing Direct’s Electric Orange account has an overdraft fee calculator. They charge a small APR (recently 7.25% APR) on the overdraft versus a dollar amount. The overdraft fees end up being very low. For example, at current rates, if you overdraft by $1,000 and maintain that negative balance for 10 days, you’d only pay $1.99 in overdraft fees. If you’re looking for some leeway with overdrafts and don’t want a hard-stop, this is not a bad option.
Everbank Overdraft Fees
Everbank’s checking account overdraft fee is similar to Ing Direct’s in that they charge a % rate (currently .03% daily), which equates to about 10.65% annually.
Overdraft Fee Discussion:
- Has your bank approached you about the overdraft protection fee changes? How did they phrase the opt-in to you?
- Have you opted in to an overdraft protection service? Why or why not?
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I just love the way send you “Pleeeeeease-opt-in” begging letters acting like they are doing you a favor.
I have a savings account with $500 in it that is linked to my regular checking and would be where the overdraft would come from if I ever made one (though in 13 years of having a bank account I have overdrawn ONE time and they credited the overdraft fee back to my account when I called to find out why the account had been overdrawn). I pretty much charge everything I can on a card with zero balance, though, and pay that off in full every month, so between those two things I can’t imagine that I’d be in a position where I’d overdraw.
Soooo glad they’ve done away with the “convenience” fees.
@ Honey – yeah, sometimes banks will credit you back if you ask very kindly for them to do so. However, that probably doesn’t happen as often as it should. Ultimately, these rule changes are good, however, they don’t do enough.
I’ve been getting tons of junk mail from Chase about this exact topic. They are practically begging for me to sign up for this stuff. Now when I take money from the ATM, they even have a screen asking me about this stuff also! Unfortunately I have to acknowledge that I’ve read the screen and choose not to get it but it just shows how far they’re willing to go to get these extra fees.
Actually, I didn’t ask for them to credit back the fee – I called because I tracked my expenditures and was trying to figure out if there had been a fraudulent charge. The person I spoke to was very patient and spent 30 minutes or so on the phone with me to track down what caused the account to overdraw. It turned out I had not recorded an ATM withdrawal. I thanked her for her time and said that I was relieved to know my account hadn’t been compromised, and she spontaneously offered to credit me back the overdraft fee.
This is why I have stayed with Bank of America despite the fact that they don’t have the greatest reputation. I have never asked for anything except information when I called (“I don’t know why this happened and I am just trying to understand”), but I have always been treated very well. Another time I got a personal thank-you letter from the person I had spoken to on the phone accompanied by a free account upgrade.
Bank of America has given me three different stories concerning the “overdraft fee”. They are essentially thieves. On one “overdraft” after going thru transactions with the so called customer service person, we discovered I had not actually overdrawn. Why was I charged? Well she couldn’t tell me. I am moving from Bank of America. DO NOT DO BUSINESS with BOA. They will rip you off and are kings of Customer NO SERVICE. They stink.
@ Brenda – I have heard of some very questionable business practices from BoA, indeed.
Overdraft protection needed to go. The notion of “Spend money only if you have it” got me and I got away with Credit Cards and decided to use only my Debit card. Good idea, right? Wrong…
So, while I stopped paying APR, I began paying these OD protection fees. I talked to the bank and they never would let me opt out.
I had this very “bad” habit of moving my money from checking account to saving account if I wasnt expecting any payments. That would keep my account at 30/40 odd bucks for about 4/5 days in a month. Now, a few of my service providers (my water bill, my monthly association fees and my cleaning lady) never withdrew money when I expect them. They hold off for a couple of months sometime. About 3/4 times in a year, I got caught in that zone.. and wallah …
For once, Obama (or whoever) did something that directly impacted my positively. I am an independant so, dont slam me for favoring Obama
What really sucked about my case was – the bank never paid the money, they just moved my money from my savings account to my checking account.. and still charged me this fees.
Everyone should stay away from bank of America. They charged my account three overdraft fees concurrently.I did no realize my account was overdrawn for several days only to find another overdraft fee, reason being my account was overdrawn for more than five days. I talked to one of the customer representative and She informed me that there is nothing they can do about it. Tried to convince me about overdraft protection, which did not make any sense. Taking money from my saving account to cover my negative balance in my checking account is something i can do myself. So how does it benefit me as a customer for having overdraft protection? Simply put:BOA is out to make money out of its customers through unscrupulous means like overdraft fees.Had to close my account immediately.
To see my ongoing adventure with my credit union, click here.
First I thought it was the Federal Reserve requiring banks to charge flat overdraft fees. Now, after reading the above article I’m not so sure that perhaps my credit union is trying to take advantage of the situation….
I worked at a bank for four years. Overdraft fees are one of the sleaziest practices in the industry. I always wondered how banks could make money on “free checking”, when they’d even give you up to $100 to open your account. The way it works is that, for every so many customers that are responsible and lucky enough to never overdraw their account, there is one who will do so on a regular basis. That one customer is worth hundreds of dollars a year in fee income (read: free money) and pays for the costs of servicing the dozens of responsible users’ accounts. The problem is that any bank which does not do this is also not able to offer free checking with no strings attached plus a $100 free gift for opening a checking account. So there is a “race to the bottom” and almost all banks went with the automatic overdraft business model.
I’m glad that Obama’s banking law fixed this corrupt practice. Many banks may decide that they will have to reattach strings to their free checking accounts, but at least they’re not making scapegoats out of a few customers in order to give a free service to others.
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