Overdraft Protection sounds nice, doesn't it? Did you know that with the advent of Overdraft Protection banks have been charging more overdraft fees than ever? Check out this CNN Money article to read all about it.
If you're not familiar with Overdraft Protection (of which there are multiple forms), this is how it works:
Let's say you're out on a date and it comes time to pay the bill. You checked your account balance yesterday and you are confident that you have enough money to cover dinner. It turns out that a bill you paid a few days ago just hit your checking account this morning, leaving you ten dollars short. In the old days, your card would be declined and you'd suffer the embarrassment of the "Sir/ma'am, do you have something else? This card has been declined" scenario. Uncomfortable, sure, but you wouldn't be spending money you don't have and you wouldn't incur an overdraft fee.
With Overdraft Protection, a service offered by most banks, consumers can elect to have their debit card approved even when they have insufficient funds for purchases in order to avoid the embarrassment of a decline. Some banks will draw funds from a linked savings account to cover overdrawn checking accounts and will not charge a fee for this service. Still others will essentially provide a short term loan and immediately charge an overdraft fee. These overdraft fees can be considerable and the longer you go without replenishing your funds, the more fees you may incur. Some of the most popular banks have multiple options-- from the savings withdrawal to a linked credit card-- and every bank will have their own policy with regard to fees charged for overdrawn accounts and subsequent actions.
If you're looking for ways to avoid overdrafting your account, consider forming a habit we'll call "padding your account." Say you're out and about making purchases using your debit card. You will likely want to keep a running tab of your purchases in mind (or on paper) even if you have a smartphone to view your account details because of the lag that can exist between making purchases and having them reflect on your online banking account. When you're keeping this running tab, round all of your purchases up a few dollars-- if you spent $22.50 at a restaurant, think of it as spending $25. If you do this every time you spend money, you'll keep your account padded enough to avoid overspending and overdrafting. Of course, after a day of spending, be sure to check your bank statement against your receipts.
Like many financial decisions, from how to pay off debt to how much to budget, there are personal preferences to consider. If you want to impress your date, Overdraft Protection might be the right choice for you. If you want to be sure you're always spending within your means, you should rely on careful budgeting and consider employing the "padding" strategy. No matter what you're prioritizing, keep an eye on your accounts.
Take a look at the fine print of your bank's policy with regard to Overdraft Protection. Tell your friends about what you've learned. You may be surprised that Overdraft Protection as a concept seems to be under the radar.
~Savvy Student
If you're not familiar with Overdraft Protection (of which there are multiple forms), this is how it works:
Let's say you're out on a date and it comes time to pay the bill. You checked your account balance yesterday and you are confident that you have enough money to cover dinner. It turns out that a bill you paid a few days ago just hit your checking account this morning, leaving you ten dollars short. In the old days, your card would be declined and you'd suffer the embarrassment of the "Sir/ma'am, do you have something else? This card has been declined" scenario. Uncomfortable, sure, but you wouldn't be spending money you don't have and you wouldn't incur an overdraft fee.
With Overdraft Protection, a service offered by most banks, consumers can elect to have their debit card approved even when they have insufficient funds for purchases in order to avoid the embarrassment of a decline. Some banks will draw funds from a linked savings account to cover overdrawn checking accounts and will not charge a fee for this service. Still others will essentially provide a short term loan and immediately charge an overdraft fee. These overdraft fees can be considerable and the longer you go without replenishing your funds, the more fees you may incur. Some of the most popular banks have multiple options-- from the savings withdrawal to a linked credit card-- and every bank will have their own policy with regard to fees charged for overdrawn accounts and subsequent actions.
If you're looking for ways to avoid overdrafting your account, consider forming a habit we'll call "padding your account." Say you're out and about making purchases using your debit card. You will likely want to keep a running tab of your purchases in mind (or on paper) even if you have a smartphone to view your account details because of the lag that can exist between making purchases and having them reflect on your online banking account. When you're keeping this running tab, round all of your purchases up a few dollars-- if you spent $22.50 at a restaurant, think of it as spending $25. If you do this every time you spend money, you'll keep your account padded enough to avoid overspending and overdrafting. Of course, after a day of spending, be sure to check your bank statement against your receipts.
Like many financial decisions, from how to pay off debt to how much to budget, there are personal preferences to consider. If you want to impress your date, Overdraft Protection might be the right choice for you. If you want to be sure you're always spending within your means, you should rely on careful budgeting and consider employing the "padding" strategy. No matter what you're prioritizing, keep an eye on your accounts.
Take a look at the fine print of your bank's policy with regard to Overdraft Protection. Tell your friends about what you've learned. You may be surprised that Overdraft Protection as a concept seems to be under the radar.
~Savvy Student
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