Overdraft Protection-Not So Great


Overdraft Protection – Not So Great


Consumer Advocate Daniel Luis Caridad points out that overdraft protection is not so great and can cost you a lot of money.

Overdraft Facts

Here’s the good news first: HSBC, Bank of America and Citibank essentially don’t allow you to overdraw your account if you use a debit card.  These banks will only  process a debit with insufficient funds if your checking account is linked to your savings account.  As Daniel points out in his video this is the best way to cover the possibility of overdrafts.

Many Banks and Credit Unions Still Charge Overdraft Fees

The Consumer Federation of America (CFA) examined the policies at the nation’s 14 largest banks. It found the average overdraft fee is $35 and discovered a system of tiered overdraft fees that pile on penalty after penalty if you have more than one overdraft during the year, and if you don’t repay the overdrafts immediately.  Some banks charge a fee each day that your account is overdrawn.  A 2008 study by the Federal Deposit Insurance Corporation found that consumers who overdrew their accounts 20 or more times a year paid an annual average of $1,610 in overdraft fees.


The Consumer Financial Protection Bureau (CFPB) says young consumers and low-income consumers are the most likely to run into trouble with overdraft fees, and it’s launched an investigation to examine overdraft practices. It plans to make recommendations for legislation or new regulations.

Congressional Action

Congresswoman Carolyn Maloney (D-N.Y.), Congresswoman Maxine Waters (D-California) and 41 co-sponsors introduced a bill to protect consumers from abusive overdraft practices by requiring consumers to affirmatively opt-in to overdraft coverage for all types of transactions and prohibiting the manipulation of transactions in order to maximize overdraft fees.

While that’s a great initiative, there’s a long way to go before it becomes a law.

In the meantime, it’s up to you to protect yourself.

Best Advice

Link your savings and checking accounts.

Be careful about debiting or writing checks if you don’t have the cash in the bank.

Keep a close eye on your accounts. Review your statements online regularly.
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Watch How to Improve My Credit – The Truth to stay on top of your credit score.

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