Overdraft Protection Service: Does It Really Protect You?

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A recent publication by the Financial Brand indicates that 43 percent of consumers say they have no bank fees or that they are completely unaware of the bank fees they do have. One of these fees may be overdraft protection.

In 2009, the Federal Reserve Board of Governors ruled that in order for a financial institution to charge you overdraft fees on ATM and onetime debit card transactions, you must opt in to receive such protection. The ruling also specified information you must agree to, including the financial institution’s fees and your choices regarding the service.

Now that you have the option to opt in, should you? Here is a bit of information you should consider when deciding whether to opt in or opt out of overdraft protection.

Purpose

Overdraft protection was designed to protect you from bouncing a check. If you wrote a check that your balance couldn’t cover, the bank would cover the check. This saved you the embarrassment of bouncing a check and also money in the form of returned check fees. The Federalist Society published data from a 2006 survey that found that 86 percent of banks had at least one type of formal overdraft program. That same survey found that on average, 6 percent of banks’ operating revenue was derived from overdraft fees.

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