Overdraft Protection - A Bad Deal

Overdraft protection is a simple concept: If you incur charges to your bank account without having sufficient funds to cover that charge, your bank will temporarily “loan” you the difference for a flat, $25-35 fee. For many, though, overdraft protection is more hindrance, less help, as bank customers get slammed with multiple fees.

Many banks have the policy that larger transactions get debited first. Therefore, if you have $100 in your account, and charge $10, $10, $150, your $150 transaction will be debited first, incurring you three $35 dollar fees instead of one, despite the chronological order of your transactions. Given this scenario, many believe that this bank “service” is anything but, hurting those who can least afford it.

Nevertheless, incurring any overdraft fee is a poor financial practice. Basic skills, like knowing how to balance a checkbook, will help anyone prevent spending more than he or she earns. Simply put, expenses should not exceed income, and overdraft fees will not occur.

Banks, on the other hand, claim that overdraft protection is a valuable service meant to help. “We process checks and other debits starting with the largest amount. That way, important, large bills such as mortgages, rent and car payments will be paid first,” spokesman for Chase bank, Tomy Kelly, said.

Overdraft protection, depending on your side of the bank statement, can be a very positive, helpful service. However, many have expressed their desire for it to be opt-in, so that those customers who prefer for checks to bounce, will be able to elect that option.