Why Overdraft Protection is a Bad Idea

If you accidentally write a check when there is not enough money in your account to cover it, overdraft protection can kick in to cover the amount and basically save you from a bounced check. But overdraft protection can be a bad idea, especially when you are being charged a bundle for the service.

Of course, you never want to bounce a check, but it makes more sense to skip the bank provided overdraft protection, and instead build in your own system of protection. Why? Well, the fees for overdraft protection are quite steep.

Usually, your overdraft is covered by a linked overdraft bank account that will cover the money. When overdraft protection kicks in, the money is transferred from that account automatically, and the bank will charge you an average of $35 for the transfer. Per transfer. So, if you overdraft on three checks, you will pay a separate fee for each one, even if they occur at the same time. Since the bank considers the overdraft a loan, it will charge you interest on the overdraft amount. Some banks go one step further. If you fail to pay the overdraft and the fees within five days, you’ll be hit with a second overdraft fee of $35. $70, plus interest, plus coverage for the overdraft. Whew. Expensive.

Keeping an eye on your accounts and expenses is the best way to prevent a problem, of course, but if you are nervous, there are a couple of steps that you can take to eliminate the expensive overdraft protection service while still being covered. You can build in an extra cushion of money that you pretend isn’t there. This way if you write a check before an automatic deposit kicks in, you’ll be covered. You can also take advantage of the low balance alerts that many banks provide for free.

Since many bank accounts automatically came with overdraft protection services and the extra fees, it pays to take a look at your accounts carefully, to see if overdraft protection is engaged.

This entry was posted in General and tagged , by Mary Ann Romans. Bookmark the permalink.

About Mary Ann Romans

Mary Ann Romans is a freelance writer, online content manager, wife and mother of three children. She lives in Pennsylvania in the middle of the woods but close enough to Target and Home Depot. The author of many magazine, newspaper and online articles, Mary Ann enjoys writing about almost any subject. "Writing gives me the opportunity to both learn interesting information, and to interact with wonderful people." Mary Ann has written more than 5,000 blogs for Families.com since she started back in December 2006. Contact her at maromans AT verizon.net or visit her personal blog http://homeinawoods.wordpress.com