Why opting out of debit card overdraft coverage is a good idea

If you are like many people, you have a debit card. By now, you need to have gotten a letter from the bank asking you if you would like to continue with the bank’s standard overdraft coverage. This letter is a result of new credit card rules that require banks to ask you if you would rather opt out of paying for an overdraft and just have your purchase declined. Consumer complaints about spiraling bank overdraft fees helped spur the change in regulations . If you haven’t made your decision yet, keep in mind that banks are selling the service for one reason: they make money doing it.
Post resource: Why opting out of debit card overdraft coverage is a good idea by Personal Money Store
The scam of debit card overdraft coverage
Jeff Gelles at the Philadelphia Inquirer reports that when debit cards came into fashion, banks saw a new way to steal from their customers by confusing them about the nature of debit and credit cards. Debit cards draw on money inside your checking account. When your checking account runs dry and also you use your debit card, overdraft coverage charges you a hefty overdraft fee. That’s where the “$ 40 cup of coffee” came into being. Rather than letting your bank pick your pocket with debit card overdraft coverage, it makes more sense to get a payday loan when you are short of cash.
Big bank pulls overdraft fees—could others follow
You should take this possibility to break free from your bank’s overdraft coverage, Gelles said. That’s’ such good advice, even Bank of America agrees with him. Bank of The US announced in March that it will no longer offer debit card overdraft coverage. The New York Times reports that other banks could be forced to do the exact same to compete for customers, although the lost revenue will cost tens of millions of dollars a year.
Bank overdraft fees get out of hand
As the offending transaction goes unnoticed, debit card overdraft fees can get out of hand in a hurry. Gelles said the Starbucks barista doesn’t say, “You know this is an overdraft, don’t you?” so when you get dinged once, you may get dinged again and again until you realize what’s going on. There are no legal limits to how many times you are able to get penalized. Wachovia will charge you for up to four overdrafts, or $ 140, a day. Citizens Bank, not quite as concerned about customer well being, will gladly pilfer $ 37 each for up to seven overdrafts a day: $ 259.
Get organized to keep away from bank overdraft fees
The new credit card rules about bank overdraft fees draw attention to the problem that too many consumers are poor managers of their checking accounts. In a press release, tips for avoiding overdraft fees or the unpleasant experience of having a purchase declined are offered by Michael S. Kappas, President and CEO of Apprisen:
1. Do not forget that an updated check register has a more accurate account balance than an ATM slip.
2.Keep track of all deposits, withdrawal slips and purchase receipts. Record those as part of your check register.
3.Know your checking account balance before you make a debit card purchase or ATM withdrawal.
4. Whether you write checks or not, balance your account once a month.
5. Pad your checking account with “ghost” funds. Throw an extra few hundred bucks in there and don’t write it within the register. Account for the additional cash whenever you balance the account.
6. Make certain you are aware of the possibilities your bank provides for avoiding potential overdraft situations.
philly.com
nytimes.com
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