Study finds overdraft protection not worth the service fees
The Consumer Financial Protection Bureau is out with a new study that finds consumers who op-in to debit card and ATM overdraft protection are still at risk of incurring exorbitant fees, despite recent regulatory changes.
Collecting overdraft fees is good business for banks and credit unions, which generate an estimated $33 billion a year. According to the CFPB, at least two large banks have been accused of using deceptive practices to get you to sign up.
Consumer Report's advice: Don’t be pressured into getting overdraft protection. It’s not mandatory. You’re better off declining overdraft protection altogether. Your transaction might get denied, but one study shows you’ll save more than $20 a month in checking fees.
Instead, sign up for text and email alerts that flag low balances. And link your checking to a savings account, which can cover shortfalls, either for free or a relatively small fee.
CR also recommends signing up for banking mobile apps so you can check your balance before you make that purchase. That way you’ll know before you swipe if you’ve got enough cash to cover the charge.
The CFPB found the consumers who overdraw their accounts the most are those who are most financially vulnerable, carrying low bank account balances and with lower credit scores.
If, despite all your efforts, you are charged the occasional overdraft fee, call or visit where you bank and ask for the fee to be waived. Banks and credit unions will often extend that courtesy to good customers.