Fed Reviews Overdraft Protection

Here's a snapshot of what consumers need to know about bank overdraft plans:

Keep a close eye on your checking account - Virtually all bank overdraft issues are related to either insufficient funds on checks you paid out, or not enough money in your checking account to cover a debit card purchase. Most banks will allow the debit card purchase to go through, and may even clear your check.

But such transactions can add up. If you make three purchases on your debit card that your bank account can't cover, your bank may allow the transactions to go through, but will hit you with three separate overdraft fees. At $35 a pop, those three overdrafts will set you back $105 - a hefty hit for three measly debit card purchases. Your best bet? Get online and hit your bank's web site. Sign up for online banking and regularly bring up your checking account to track purchases, canceled checks, and account assets. Aim to do so at least once every 48 hours, especially if you've paid out a lot of checks or made numerous debit card purchases.

Watch out for "holds" - Many businesses, especially rental car agencies, hotels, and even gas stations, will pace a hold on your purchase above and beyond the amount of the original charge. They do so to leave some wiggle room to charge you more if you raid the mini-fridge in your hotel room or don't fill the tank up on your rental car (a consumer finance no-no, by the way. Rental car firms charge much more to fill your car's tank than what you would pay at a gas station). Holds can eat into your bank account and may take several days for the hold to clear. In the meantime, if you're not aware of a hold, you might make an extra purchase or two, and thus potentially trigger overdraft fees you didn't see coming. The Fed is also studying the issue of "holds" in its reform initiative this year, although it's unclear whether they can abolish them.