Bank Overdraft Fees Could Be A Thing of the Past

by admin on 15/03/10 at 1:04 pm

Tired of getting zapped with a $35 overdraft fee when you use your debit card? You may be in luck – some of the nation’s largest banks are finally taking steps to do away with overdraft charges.

Starting this summer Bank of America – the country’s largest bank and biggest debit card issuer – will decline purchases that overdraw a customer’s bank account. In the past, B of A would allow such purchases to go through, only to saddle the customer with overdraft fees that were often more than the original purchase itself.

Under the new policy, Bank of America will inform customers who overdraw their account that they will have to pay an overdraft fee before allowing them to withdraw more money from an ATM. Not surprisingly, most consumers will choose not to incur those charges.

While this might sound like a small change, it amount to big money for the banks. The nation’s commercial banks made a whopping $38 billion from overdraft and insufficient fund fees last year. Over the last ten years these fees have become an increasingly important source of revenue for banks as customers have started to use debit cards for a wide variety of purchases including monthly bills.

The overdraft protection plans being marketed by the banks are different than the less controversial method of automatically moving funds from your savings account to your checking account to cover an overdrawn check.

The Federal Reserve has stepped in and warned banks that they can no longer automatically enroll their customers in overdraft protection schemes. On July 1, 2010 banks must start to get customers to opt-in to overdraft plans before charging any fees.

Given the huge dollars involved, many banks have begun large scale marketing campaigns to convince customers to sign up. The New York Times has reported that banks like Chase have been sending out aggressive letters to customers warning them of dire consequences if they don’t agree to an overdraft protection plan.

A 2008 study by the Federal Deposit Insurance Corporation found that 93 percent of overdraft fees came from just 14 percent of customers who exceeded their balances at least five times a year. If you are one of these people you can expect a full court press from your bank to opt-in to an overdraft protection plan.

Here’s the bottom line: if you want to save money you should decline to opt-in to an overdraft protection plan offered by your bank. Instead, if you get overdrawn simply allow your purchase to be declined and top up your account later. Having the convenience of paying by debit card just isn’t worth the extra overdraft fees associated with it.

Why potentially pay $35 in overdraft fees for a $1 pack of gum? Just say no to overdraft protection.