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A Long Overdue Goodbye to Overdraft Fees


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You've heard the stories. A $3 gallon of milk becomes a $40 purchase; several small transactions begin to add up to hundreds of dollars, all as a result of overdraft fees. Fees have long been a bone of contention between consumers and banks, but the game is about to change in favor of the consumer. Soon, it will be illegal for banks to charge overdraft fees on your account without your explicit permission.

In the wake of the Wall Street reform and growing consumer unrest on excessive fees charged by banks, new legislation on overdraft fees is set to go into law. What does this mean to you? Potentially, it could mean a lot, theoretically and in terms of money in your wallet.

Protected - But Not From Fees

The majority of the time banks automatically enroll customers into "overdraft protection." It's right there in the fine print, along with the other fees and charges associated with your account. Protection comes at a price -- typically a fee ranging from about $24-$36 at major banks for each occurrence. Simply put, if you do not have the money in your account to honor a transaction, the bank allows the transaction to go through but charges a fee in addition.

So a $3 cup of coffee purchased without sufficient funds in your bank account could end up costing you $39 (the $3 plus a $36 overdraft fee). End up buying a few cups of coffee on the same day, and you'll get charged an overdraft fee for each transaction that puts your balance into the red. Those small items suddenly translate into big dollars in fees. This means less money in your bank account and more profit for the banks due to a simple case of carelessness by the consumer.

Overdraft Fees A Thing of the Past

Banks will no longer be able to charge overdraft fees on your account unless you opt-in and allow them to do so. While this does mean the bank won't be allowed to issue overdraft fees on your account, it also means they will refuse to honor transactions when there aren't enough funds in the account to cover the charge. Instead of a fee, your purchase or transaction will be declined. Potential embarrassment, yes, but also much needed motivation for making sure you've balanced the budget recently.

Plan Wisely to Avoid Declined Transactions

If you have a history of not being as on top of your bank account balance as you'd like (with an overdraft charge or two in the past several months), now is a great time to put some good habits in place:

  • Check your balance regularly
  • Keep a ledger (either online or off) of what you've spent and where
  • Maintain a running tally of current available funds
  • Stick to a budget!

If on the off chance you want to opt-in for fees (the very phrase seems strange), your bank should have a form for you to complete and sign authorizing the charges.

With a little planning and budgeting, the new legislation on overdraft fees should add up to more responsible banking practices for the industry and better peace of mind for consumers. For specific details on your account, check your bank's website for information.

For more info on planning a personal budget, here's some recommended reading:

How to Create a Budget

Weekend Challenge 4: Creating a Real Budget

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  3. Banking / Loans
  4. Checking Accounts
  5. Minimize Fees
  6. Overdraft Fees and New Financial Reform Rules

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