In A Nut Shell

If I had a penny for every time I overdrafted…well, let’s just say the  arguments made by Reps. Carolyn Maloney—D-NY and Barney Frank—D-Mass. in sponsorphip of the Overdraft Protection Act sounds all too familiar.

At the same time, now that my own spending has become more conservative and that I’ve actually become more responsible with keeping track of it, I can see where the bankers are coming from by implementing overdraft fees in the first place. According to them, they’re extending a courtesy service to you by essentially covering your ass when your balance is negative. And the trade-off is the overdraft fee. Take it or leave it.

Sure, I would definitely appreciate a heads-up at the ATM or grocery store if I’m about to overdraft with my debit card, but at the same time, the banks DO generally warn you about how overdraft protection works right when you open an account with them.

The problem is we fall for the trap of accepting “overdraft protection” as a service that’s going to help us, when really, it’d be better for us if transactions were just halted before the account went sub-zero.

So how can you avoid annoying overdraft fees?

Start by declining overdraft protection altogether. If your bank gives you the chance to opt out of it, go for it. Keep a cushion of a couple hundred—or at least one hundred— bucks in your checking account and pretend it’s not even there. This will take care of any small expenditures you might have missed when balancing your checkbook. If your bank allows it, ask them to pull funds from your savings when your checking account has insufficient funds, and replenish your savings later. But keep in mind, there’s a limit of six of these per month due to federal regulations. Some banks have a lower limit. Finally, don’t rely solely on online banking to give you an accurate checking account balance. Some outstanding payments do not show up online, so this can mislead you.

Maybe it’s because I’ve been hit so many times that now I’ve learned, but when it comes down to it, the surest way for individuals to avoid overdraft fees is to keep a meticulous record of all expenses, whether it’s the couple hundred you pay for rent each month, or even the $1.00 you debit for a pack of gum.

Bottom line: if you’re already frequently spending money you don’t have or not keeping track of expenses, this bill isn’t going to help you.

(Flickr photo by redspotted)