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.

bank overdraft protection feesThe 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:

  1. Enroll for ‘overdraft protection’.
  2. 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.

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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