No more overdraft protection? 5 tips
If you didn't opt in for the service, your bank can no longer charge you a hefty fee. Instead, your debit card will be declined.
That's the service that pays the transaction but charges a fee -- typically about $30 -- sometimes resulting in big tabs for tiny purchases. Enrollment used to be automatic, but new rules require that banks now get your permission before signing you up. (Here's our story about the new overdraft rules.)
While most consumer advocates (including us) applaud the decision to not sign up for the service, it's left millions of Americans walking around with no protection at all. If you're not carrying a sufficient bank balance, you'll avoid an overdraft fee -- but you'll find yourself in the inconvenient and embarrassing position of having your debit card rejected. What's a consumer to do? Post continues after video.
Here are five ideas:
1. Carry cash. It never gets rejected. In addition, there are at least two more advantages to cash. First, you may need it anyway. Part of the recent financial reform law allows stores for the first time to set minimum purchase requirements for plastic, and more and more are doing so. If you want to spend less than $10 on a transaction -- say, for chips and a soda or a latte -- cash may become your only option. Another advantage of carrying cash? You're likely to be more stingy with real money than plastic. Here's a story we did that offers evidence.
2. Check your balance online. Most banks now allow you to check your balance with your smart phone. Many will even send you an e-mail or text message when your balance declines to a predetermined level. There's no excuse for overdrawing your account when you can check your balance instantly from anywhere.
3. Balance your checking account. Bank research firm Moebs says an unbelievable 87% of people don't. Knowing what you have in the bank is the best way to avoid overdrawing your account, and reconciling your balance with the bank's is the only sure way of knowing what you have.
Plus, the new rules for declining courtesy overdraft don't apply to checks or automatic withdrawals. As the FDIC notes: "These new limitations only apply to one-time debit card transactions and ATM withdrawals. Your bank may cover an overdraft that occurs by check or automatic payment (such as for your mortgage, insurance premiums or health club membership) without you opting in for overdraft coverage, and it is likely to charge you a fee for doing so."
And even if your bank doesn't cover an overdraft, retailers will fine you more than ever for bounced checks -- up to 20% more than last year, according to Moebs.
4. Get real overdraft protection. The courtesy overdraft protection that banks formerly put on every customer's account without advance approval was designed to generate fee income. Real overdraft protection is having money automatically transferred from a savings account or credit line should your checking balance fall below a certain level. Depending on where you bank, transfers may cost money -- or, in the case of a credit line, interest -- but it should be cheaper than the courtesy overdraft.
5. Carry a credit card as a backup. If you're going to ignore the advice above, at least carry a backup in the form of a credit card. There are many sites that can help you compare cards to find the best deal.
Be sure to check out the FDIC's consumer news for more advice. They have plenty of suggestions for dodging overdrafts and fees.
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