Overdraft Protection is a scam you should avoid

If you have a debit card you may get a letter in the mail telling you that you are no longer protected from overdrafts unless you tell the bank that you want to sign up for their overdraft protection.  Don’t do it.

The “old” system allows banks to charge you every time you use the debit card to make a purchase that amounts to more than you had in the bank at that moment.  So, if you buy something for, say $100, and you have only $80 in your account, they can let the $100 go through, collect the $20 deficit from your next deposit and charge you as much as $35 for the service!

These overdraft charges have produced billions of dollars for the banks and they do not want to give them up; but new rules require that they get your permission before continuing these charges.  So, they are going to do everything they can to get you to say “OK, keep taking my money.”

For example, they may tell you that when you buy gas the oil company may try to put an immediate “hold” on say, $100, because they do not know how much gas you’re going to take until you have finished pumping.  If your account has only $80 in it, the company will reject your card and you won’t be able to buy gas — unless you have overdraft protection (and pay the $35 fee).

They might point out that if you deposit a check in the morning and try to use your debit card in the afternoon, it might get rejected because your check has not yet cleared (it can take a couple of days or even longer for a check to clear) — unless you have overdraft protection (and pay the $35 fee).

I’m sure the banks will think up even more ominous things to tell you in their efforts to keep their money.

My advice:  No matter what they say, do NOT sign up for overdraft protection.  If you have any doubt at all about how much money you have in your checking account, don’t use your debit card.  Take out your credit card.  Even if you cannot afford to pay the whole credit card bill at the end of the month, the interest you get charged is likely to be less than the fee the bank charges for overdraft protection.  And they can charge you that fee three times a day!!!

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