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Taking overdraft fees to the bank

Name bar If you have an ATM or debit card, right about now you should be getting a note from your bank about some changes to the way the card will work if your account is low on cash.

From now on, banks will need your permission before they can cover you when you're short -- and attach a $30 or $35 fee to the transaction. These fees have been known to turn a $5 cup of joe into a $40 cup-runneth-over with annoyance. Worse yet, once you committed the sin of overdrawing your account, some banks charged another fee for every additional purchase until your account was replenished -- instead of just letting the card get turned down.

There's a lawsuit in the works over the whole issue. 7022934-overdraft-fees-may-take-you-by-surprise-custom

But the rules have changed. So this is not a time for you to trash the note from your bank and assume its incomprehensible gobbledygook you can live without paying attention to (unless you're like me and never use your ATM or debit card to buy anything. Ever.). If it helps you fight the urge to trash this missive without looking it over, consider that banks made over $38.5 billion just from these fees last year.

My bank's note says that starting Aug. 13 for existing accounts and July 23 for new ones, debit and ATM transactions will be declined if I don't have enough money in my account to cover them. I can opt in to the old way of doing things -- having my charges covered no matter what the exorbitant fees -- if I choose. My bank says that from now on, if I have this service, I'll only be charged four of these fees per day, max. (I guess this is actually a victory in some way, so thanks.)

But I can also get low-balance alerts -- even in the form of text messages from some banks -- or link another account to my checking account, so that I'll be covered with my own cash, and not the banks, if I spend beyond my bank balance.

These rules don't apply to overdraft fees for paper checks or automatic bill payments, which could be a sizable loophole for banks to keep collecting money based on our mistakes. This is one you can't afford to make.

In case you're thinking the banks are just feeling generous by reining in these fees, think again. Some banks already have plans to kill free checking accounts and tack on other fees and charges to make up for what they won't be bringing in with errant swipes.

As if you needed another reason not to trash those notes from your bank.

Posted by Nirvi Shah at 09:00 AM on July 1, 2010 in Banking , Impulsive spending , Savings | Permalink | Facebook | Digg | del.icio.us | AIM



Wouldn't it be a lot more practical to just use a credit card, and pay off the balance every month? Wouldn't that be a lot cheaper than paying such horrifice overdraft fees on a debit card?


Definitely. That's my strategy. But some people are working on paying down their credit cards and don't want to charge anything more on them, I would imagine. And some people don't have credit cards.

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