With overdraft fees running between $30 and $35 per transaction, the financial institutions are making bank. In 2011, the banks collected almost $30 billion in revenue from these fees. Where do these funds come from? Overdraft fees are collected from checking accounts across the nation when overdraft errors occur. It is the hard working consumer who is paying the billions in fees. Imagine the difference it could make to have billions of dollars still in checking accounts.
Overdraft protection plans are set up to help you keep the costs down on overdraft errors. Most banks will charge you for the plan. The plan will protect you by covering the check or debit by making the payment for you and will be repaid by your next deposit. Depending on the amount that you went over and what type of plan your bank offers, your coverage may be considered a loan which will have interest payments attached. So now you are not only paying for the service, but could also be paying interest on the money used to cover your error as well. There are also fees attached to using this option too many times. The banks created these fees to keep the consumer from taking advantage of this overdraft plan. Make sure you know what the charges will be when you sign up for this protection plan.
Confusion with how consumers can opt-in to these protection plans keeps overdraft fee revenue climbing. The Federal Reserve implemented new rules for banks to follow in regards to obtaining permission from consumers before they can be enrolled in the program. Most consumers would think that this program would be automatic and that if they were to decline, they would have to fill out an “opt-out” form. The overdraft protection plan is just the opposite; you must fill out the “opt-in” form in order to be enrolled. This confused many bank customers. More confusion was created when customers thought that opting-in would keep them from being charged fees.
One good benefit from this plan is that if you were to bounce a check you will avoid being charged additional fees from the retailer. It also prevents any embarrassment from occurring if the check you wrote was made out to a friend or business partner. If you have the protection plan, the bank would cover the costs so the check goes through.
If you are thinking about opting-in to the overdraft protection plan, you will want to know everything about it. Talk with a banker about what the cost of the plan is and what the protections covers. Will there be loan interest or other charges on top of the fee for the plan. The other thing to consider is how often you actually have overdrafts. Would the fees you would pay for protection be larger than your normal overdraft costs? These are all things to consider before signing up for the plan. If you would be signing onto the plan to save money, make sure that it is doing exactly that.
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