If you have a checking account at a bank, which most adults do, you’ve probably already gotten emails or letters regarding the new bank overdraft rules effecting ATM and debit card transactions taking effect on July 1st for new accounts and August 15th for existing accounts. Every time I log into my Chase checking account online these days, I get a screen asking me if I want to sign up for overdraft coverage.
What the banks are asking, in effect, is for your permission for them to charge you up to $30 + for the privilege of covering your account purchases if you have an insufficient balance. With the passage of the new reform last year (federal reserve press release), in order for banks to continue with “business as usual” and charge exorbitant fees when you overdraft your account, you have to agree to it first. Otherwise, your purchase will simply be declined at the point of sale. (Note that banks can still charge overdraft fees without you having to opt-in for checks, as well as recurring monthly charges you have automatically charged to your debit card)
As I mentioned, I have a Chase Bank checking account, and according to this article from the Huffington Post, some people find the sign up page for Chase’s Overdraft Protection confusing, to say the least. I didn’t find it to be too bad, but I understand how some people could.
Also a bit confusing, and again, I’m using Chase as the example here, but I would guess other banks are similar, is the difference between overdraft coverage and overdraft protection.
Overdraft coverage allows Chase to cover your overdrafts, and charges a $34 fee- and up to 3 overdrafts in a day -so if you have 3 items paid for by overdraft coverage in a single day, they will charge you $102. Chase Overdraft Coverage flyer (pdf).
However, a much cheaper option (again, at Chase) is overdraft protection, where you link a Chase savings account or credit card to your checking account to be used to cover any overdrafts, and Chase will only charge you $10 (max per day, also, from what I understand) to cover any overdrafts. Chase Overdraft Protection page.
Obviously, this would be the way to go, and if you end up overdrafting 3 items in one day, could save you $90.
According to the overdraft coverage flyer, overdraft coverage would still help you out if your linked savings account, for example did not have sufficient funds to cover your purchases. It seems to me though, if you get to that point, you have bigger problems to worry about.
The point of all of this is to make sure you know what you are signing up for with overdraft coverage, overdraft protection, or whatever your bank calls it.
If you don’t have a problem with business as usual (and hopefully don’t overdraft much), then go ahead and sign up- but a better and cheaper option would be for overdraft protection (as Chase calls it) with a linked savings account or credit card in the unfortunate event that you do overdraft your account. If you would rather have your purchase declined, then you can do nothing- the new rules are such that you have to opt-in in order to continue with overdraft coverage and the cdorresponding fees.
Are you going to opt-in for overdraft coverage? Why or Why Not?
Similar Posts:
- New Bank Overdraft Fee Regulations- Will They Have the Desired Effect?
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- What Will You Do if Banks Set a $50 Debit Card Spending Limit?
- FDIC Deposit Insurance- Rules, Limits, and Account Coverage Information
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{ 6 comments… read them below or add one }
Its so interesting how businesses word things so confusingly to try to almost trick you into choosing the wrong option. What a big difference tho! $34 per item versus $10 a day.
Thanks for the help in telling the difference. I’ll definitely be choosing overdraft protection.
I won’t have anything to do with banks that charge insane fees for overdrafts, not so much because I use the overdrafting system, but because any bank that charges fees like that is not a bank I’d want to be doing business with. I switched to ING Direct several years ago and I’ve not had one problem with them. The have overdraft on their checking accounts, but you pay mere pennies to use it. I keep a “personal overdraft” in my account–my own money, so if something weird happens (an old merchant having my debit card number charges something unexpected to my account), then I’m covered. It doesn’t cost me any fees this way and I always have extra money.
I have ING Electric Orange Checking as well, and like how they have the overdraft line of credit with a low interest rate if you do overdraft (I kept my Chase checking account, though). I think its a great idea, and wish more banks would do something similar- I guess they make too much money off of the fees, though!
I myself am confused as to Chase’s overdraft coverage flyer link above. This is in regards to debit cards in which I don’t use my debit card. This being the case it is probably best for me to have overdraft protection? Rather pay the $10 instead of the $34. Thanks for pointing that out.
Gail- If you don’t use a debit card, them you would still be subject to an overdraft fee (of $34 @ Chase) if you bounced a check- I would recommend signing up for overdraft protection with an attached savings account or credit card (if you have one from chase also)- which will limit your overdraft fee to the $10 mentioned on their web page. I believe you have to call or visit a branch to sign up- I signed up a couple of years ago to have my savings account linked, but I am going to double check to make sure it is still active.
Be aware of the overdraft protection when you link your debit card to your credit card. It will cost you $10 + the APR on your credit card that applies to your cash advance. Because the $10 they take out from your credit card is actually a cash advance which I personally hate because of the ridiculous interest rates.
So you will only be saving if you have a savings account linked to your debit card for the ODP.