Overdraft Protection Gets New Sales Pitch

When Wachovia customers open their statements this month, they'll find an offer for a "back-up plan" providing "increased convenience" and "added flexibility."

Actually, it’s nothing new, just an offer for overdraft protection on checking accounts and debit cards — something customers have had for years. But banks are promoting the service now because of new federal regulations taking effect Aug. 15. Previously, many banks provided overdraft protection automatically, and often refused to cancel it. Under the new rules, the customer will get it only by signing up.

The rules are meant to protect banking customers from the high costs of overdraft protection, which allows you to use your debit card when there’s not enough money in the account to cover the transaction.

The fees, of course, haven’t gone away. Wachovia (Stock Quote: WFC) charges $22 for the first overdraft in a 12-month period, then $35 for each succeeding overdraft. Customers can be charged up to four overdraft fees per day, costing up to $140.

Paying $22 or $35 might not seem so bad if you desperately need a $1,000 car repair, but it would sting if you’d simply bought a $2 cup of coffee. Fortunately, there are better ways to set up an emergency back-up system.

One is to simply carry a credit card with balances well below the credit limit. That way, you could still use the debit card for ordinary expenses like lunch, gas and groceries. By not signing up for overdraft protection, you avoid accidentally triggering a charge. Of course, it’s best not to carry a balance on your credit card, else you could pay interest.

If your debit and credit cards are at the same bank, you may be able to “link” them, so that overcharges on the debit card would automatically by charged to the credit card.

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