Debit Card Overdraft Protection? Watch out!
I recently reviewed a news article about someone who acquired a debit card to access his checking account for the purposes of “convenience and safety”, as the bank advertised. One of the features offered was “free overdraft protection”. Several days after making a deposit, he made four purchases, totaling less than $12.00, from the account. He thought he had money, but the bank had placed a “hold” on his deposit to wait until the check cleared. His deposit was considered “uncollected funds”, so no money was available for his purchases – and he was charged $34 for “overdraft protection”! (The only free part was the absence of a monthly fee for having the service available.)
Banks and credit unions have long pitched debit cards as a convenient and prudent way to buy. But a hidden risk is included as more financial institutions allow automatic overdrafts on the account. Instead of refusing a transaction when there are no available funds to cover the transaction, they allow a customer to exceed their available balance – FOR A PRICE. Banks are expected to earn more than $27 BILLION dollars this year from this overdraft “protection” service.
Since debit cards have become popular, you are often urged to use the card instead of writing a check. That means, you typically don’t write down the transaction as you would with a check and you may lose track of your account balance. Suddenly, you are overdrawn and the bank is there with a stiff fee to cover the difference. The fee you pay is far larger than you might expect.
So be very careful with your debit card if you have one. Make sure you ask about hidden fees or charges if you spend more than you have on account. If you don’t understand the rules, ask your lawyer. That’s what they’re for.
Steve Kase
Consumer/Financial | BoxTop | 
October 3, 2009 1:12 am
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