Changes coming for bank overdraft fees

April 12, 2010 3:29:07 PM PDT
Overdrawing on your debit card can cost you big time. Many banks automatically cover overdrafts, but then charge hefty fees. This summer, banks will be required to ask before signing you up for overdraft coverage. Should you say yes? Charles Berman had no idea he'd overdrawn his checking account. Then he was hit with a flood of overdraft fees. It started with a $5 lunch that generated a $35 fee.

He said, "By the time I found out that I was overdrawing my account, I ended up with hundreds of dollars that I had to pay of overdraft fees for buying small items like a soda."

Currently, banks are allowed to automatically enroll you in overdraft coverage that can result in those hefty fees. But that's about to change.

Consumer Reports Money Adviser Greg Daugherty said, "Soon new federal regulations will require that banks get your permission to cover overdrafts."

Should you sign up? Consumer Reports says no. But some banks are pushing hard, sending brochures warning "your debit card may not work the same way anymore" and "don't lose the flexibility" of overdraft coverage.

"It's true that overdraft coverage can help you in an emergency, say you need to have your car towed and don't have the money in your account," Daugherty admitted. "But the fees can be hefty, as much as $35 each time."

Far better is to avoid overdrafts altogether. If your bank offers it, sign up for electronic alerts when your account balance gets low.

Daugherty, "Another option is to link your checking account to your savings account or line of credit. The fees for that kind of protection are usually about 5 or 10 dollars per overdraft."

As for Charles, he now checks his accounts frequently online to make sure he doesn't spend more than he has.

Bank of America recently announced it's doing away with this coverage altogether on debit card purchases. The new federal regulations requiring you to sign up for overdraft protection will apply to new accounts as of July 1 and, for existing accounts, August 15.


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