Starting July 1, 2010 new overdraft rules go into effect for everyday debit card purchases and ATM transactions. Prior to these new rules, customers were automatically subjected to the financial institution’s discretionary practices of approving debit/ATM card transactions and charging a fee when their accounts were overdrawn. Now customers must opt-in to receive overdraft services on these type of transactions.
For example, prior to these new rules going into effect, if you have an account balance of $5 and make a debit card purchase of $10. Your financial institution could approve the transaction and charge you a $35 fee for overdrawing your account, resulting in a negative account balance of $40.
If you choose not to opt-in and the overdraft rules are in effect, then in the example above your transaction would simply be declined without any bank fees. Bank fees can really add up, so it’s important to understand the costs upfront.
The new overdraft rules give customers a choice and more insight into the cost of overdraft fees.
According to the Federal Reserve:
“Before opting in, the consumer must be provided a notice that explains the financial institution’s overdraft services, including the fees associated with the service, and the consumer’s choices.”
“The final overdraft rules represent an important step forward in consumer protection,” said Federal Reserve Chairman Ben S. Bernanke. “Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service.”
Keep an eye on the mail for your financial institution’s notification about ATM and debit card overdraft changes. If you have not received anything, visit your financial institution’s website to learn more about how these changes impact you.
Here are a few tips to help you save money on overdraft fees:
- Track your money (deposits, debit card transactions) and pending transactions (checks, automatic debits). Being aware of your balance and managing your transactions (debit card, ATM withdrawals) helps you avoid overdraft fees.
- Set up overdraft protection and link other accounts (e.g. savings, line of credit, credit card) to provide a safety net if you overdraw your account. These fees are typically much lower than the standard overdraft fee. Talk with your financial institution to verify if you have overdraft protection and to find out how it works. For example, you may be charged $10 when overdraft protection kicks in and covers the transaction versus a $35 fee without it. That saves you $25!
- Set up email or text alerts to notify you when your balance is low. Many financial institutions offer you 24/7 mobile banking or online banking to check your balance also.
- Deposit funds immediately to avoid overdrawing the account or any additional fees. Some banks charge additional fees if the account remains overdrawn for 5 days.
Read the Federal Reserve’s What You Need to Know: New Overdraft Rules for Debit and ATM Cards to learn more about the new overdraft rules.
What do you think about the new overdraft rules? Please share your thoughts using comments.