No More Overdraft Protection? 5 Tips to Protect Yourself

Photo (cc) by B Rosen

According to recent reports, roughly half of Americans last August chose to decline the automatic “courtesy” overdraft protection offered by their banks. That was the service that paid a transaction, but charged a fee – typically around $30 – resulting in big fees for sometimes tiny purchases. (Here’s our story about the new overdraft rules.)

While most consumer advocates (including us) applaud the decision to decline courtesy overdraft, it’s one that’s left millions of Americans walking around with no protection at all. If you’re not carrying a sufficient bank balance, you’ll avoid an overdraft fee – but the price you’ll pay is finding yourself in the inconvenient and embarrassing position of having your debit card rejected. What’s a consumer to do? Here are 5 ideas:

  1. Carry cash. It never gets rejected. In addition, there’s at least two more advantages to cash. First, you may need it anyway – part of the recent financial reform law allows stores for the first time to set minimum purchase requirements for credit cards, and more and more are. If you want to spend less than $10 on a transaction – say for chips and a soda, or a latte – cash may become your only option. Another advantage of carrying cash? You’re likely to be more stingy with real money than plastic: here’s a story we did that offers evidence.
  2. Check your balance online. Most banks now allow you to check your balance with your smart phone – many will even send you an email or text message when your balance declines to a pre-determined level. There’s no excuse for ever overdrawing your account when you can check your balance instantly from anywhere.
  3. Balance your checking account. Bank research firm Moebs says an unbelievable 87 percent of people don’t. Knowing what you have in the bank is the single best way to avoid overdrawing your account, and reconciling your balance with the bank’s is the only sure way of knowing what you have. Plus, the new rules for declining courtesy overdraft don’t apply to checks – only to debit card and ATM withdrawals. As the FDIC notes, “These new limitations only apply to one-time debit card transactions and ATM withdrawals. Your bank may cover an overdraft that occurs by check or automatic payment (such as for your mortgage, insurance premiums or health-club membership) without you opting in for overdraft coverage, and it is likely to charge you a fee for doing so.” And even if your bank doesn’t cover it, retailers will fine you more than ever for bounced checks: up to 20 percent more than last year, according to Moebs.
  4. Get real overdraft protection. The “courtesy” overdraft protection that banks formerly put on every customer’s account without their advance approval was designed to generate fee income. Real overdraft protection is having money automatically transferred from a savings account or credit line should your checking balance fall below a certain level. Depending on where you bank, transfers may cost money – or, in the case of a credit line, interest – but it should be cheaper than the courtesy overdraft.
  5. Carry a credit card as a back-up. If you’re going to ignore the advice above, at least carry a back-up in the form of a credit card. There are many sites that can help you compare cards to find the best deal, including this one.

Be sure to check out the FDIC’s consumer news for more advice – they’ve got plenty of suggestions for dodging overdrafts and fees.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
15 of the Fastest-Growing Jobs Today
15 of the Fastest-Growing Jobs Today

Times are tough, but these career fields are thriving.

This Chase Card Is Great for Groceries and Cash Back on Everything
This Chase Card Is Great for Groceries and Cash Back on Everything

You could earn more than $600 cash back in your first year just from grocery shopping.

If My Spouse Dies, Can I Get Her Social Security?
If My Spouse Dies, Can I Get Her Social Security?

If a spouse dies, will the survivor collect the other’s share in addition to his or her own?

7 Reasons You Should Not Claim Social Security Early
7 Reasons You Should Not Claim Social Security Early

The sooner you claim your Social Security retirement benefits, the more you — and perhaps also your spouse — stand to lose. Here are the stakes.

This Pastime Can Keep Your Brain Sharp as You Age
This Pastime Can Keep Your Brain Sharp as You Age

It’s never too late to benefit from taking up this type of activity.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines
Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

Why Cloth Masks May Increase Your Coronavirus Risk
Why Cloth Masks May Increase Your Coronavirus Risk

A new study finds that wearing a cloth mask can backfire if you don’t clean it properly.

11 Household Items That Go Bad — or Become Dangerous
11 Household Items That Go Bad — or Become Dangerous

When you get the impulse to stockpile these everyday items, pay close attention to their expiration dates.

8 Things You Can Get for Free at Pharmacies
8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

The 15 Worst States for Retirees in 2020
The 15 Worst States for Retirees in 2020

Based on dozens of metrics tied to affordability, quality of life and health care, these are not ideal places to spend retirement.

The 10 Most Commonly Stolen Vehicles in America
The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

This Is the Cheapest Place to Buy a Used Car
This Is the Cheapest Place to Buy a Used Car

Looking for a good deal on a set of wheels? This should be your first stop.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

10 Reasons Why You Should Actually Retire at 62
10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

7 Surprising Features That Boost Your Home Value
7 Surprising Features That Boost Your Home Value

You can add value to your home without hiring a contractor to do expensive renovations.

5 Things That Make Life More Meaningful for Retirees
5 Things That Make Life More Meaningful for Retirees

Retirees agree: These are the things that give them purpose and fulfillment in their golden years.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.