The Fed rules do not cover checks or automatic bill payments -- banks can still authorize and pay overdrafts for these transactions at their discretion and charge a fee. If you do not want your bank's standard overdraft practices in these instances, talk to your bank; they may give you the option to cancel.
Statistics on how many people opted for overdraft protection are not yet available. A July poll by the National Foundation for Credit Counseling found 26% of 2,089 respondents intended to opt in for overdraft protection.
If you are interested in the overdraft protection, be sure to read the fine print carefully to understand its costs and limitations. If your account remains overdrawn, for example, you might incur additional fees, and banks can charge the items to your account in any order they choose. A judge in California issued a $200 million fine Aug. 10 against Wells Fargo (WFC) for using a "bookkeeping device" to pay customers' most expensive charge first, increasing the chances an account would be overdrawn so the bank could charge more fees on subsequent charges. "The bank went to considerable effort to hide these manipulations while constructing a facade of phony disclosure," CNNMoney reported the judge as saying in his finding.
Finally, even if you choose to opt in, the payment of an item is discretionary. Banks will choose which transactions to cover, so a consumer can't always can't count on having overdraft protection when it's needed.Your bank may offer less expensive alternatives to overdraft protection. Some banks allow you to create a link to your credit card, savings account or line of credit that will fund overdrawn transactions. There is a fee for each transaction, but it is typically $5 to $10, much less than the overdraft protection. You must contact your bank to set up this alternative service, since it is not part of the opt-in selection. -- Reported by Bill Hardekopf of LowCards.com.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV