Overdraft protection: what is it costing you?
My bank offers this magic bullet called overdraft protection, however upon closer inspection it can be the antithesis as protection comes with a price. Today, bouncing a check is costly, my bank charges $38 per occurrence and I have heard some banks assess a daily fee for each day in a negative balance. In reality, most people at one time or another, have mistaken in calculations and caused an overdraft.
Overdraft protection is a service that protects your account in the event of an overdraft by sweeping funds from another account in your name to cover the overdraft. The linked account is typically a savings, a checking, credit card, or line of credit. Instead of an overdraft fee, you may incur a nominal sweep fee.
There are a few caveats to this ‘œprotection.’ First, some banks sweep funds in particular dollar amounts. For example, my bank sweeps in increments of $100 even if I only need to cover $20. As a result, banks promote spending and borrowing more than you truly need. Secondly, using a credit card for overdraft protection comes out of your credit line as a cash advance, and those interest rates are exorbitant!
Overdraft protection is for accidents like insurance; however data shows that consumers use overdraft protection on a recurring basis as a back up. Some tips to avoid the overdraft trap’¦ Keep track of your receipts and purchases. Calendar your automatic deductions, or stop them all together if it is costing you more than the convenience. Almost all financial institutions now offer online banking and as much time as we spend on the internet, why not make it work for you?
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Ashkan is also the co-founder of www.dayafter.us – a regional online publication focused on fashion, style, and culture.
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Ashkan: Wells Fargo customer here. I think their fee for insufficient funds is over $30 now. Funny, but I couldn’t find it published anywhere on their web site.
They do publish their overdraft fees and they can quickly add up if you’re using the service often:
Join the Class Action Lawsuit against Wachovia Bank, N.A.
Read a letter from the U.S. Congress dated May 27, 2009 against overdraft fees and a threat to the banks about reforming these fees:
Read the FDIC report issued on November 2008 that uncovers a “re-sequencing scam†Wachovia and other banks implemented to rob consumers of their money through overdraft fees:
Read more here:
http://www.badisse.com/?p=82
Great topic. There is a bill in the House right now that would limit the amount banks can charge for overdraft fees. I’ll actually be posting more about this next week, but I think it’s such a timely issue. Banks are going to start jacking up those fees as a result of the credit card restrictions that have come into effect.
I would like to join the Class Action Lawsuit. I overdraft by a total of roughly $40, but they organized my debits in a way to maximize the overdraft fees, and I have managed to accrue over $400 in overdraft charges. I’m outraged but don’t know if this is enough to join a class action suit. Please let me know if you have any advice for me. Thank you so much, I really appreciate any help or suggestions and would like to help your case as well.
Thanks,
Corene Cano