Sunday Savings Tip: New Regulations for Debit Card Overdraft Fees

 

An overdraft happens if you make a charge or purchase and don't have the money in your account to cover it. Standard practice for banks has been to charge you a flat fee each time you overdraw on your account. Some banks offer to connect your debit card to your savings account to cover the overdraft itself. However, some banks may charge a high interest rate and require quick repayment for the amount of the overdraft.

New overdraft rules from the Federal Reserve went into effect on August 15 and are designed to protect consumers. However, you must make sure you understand the new rules to know whether opting-in or opting-out is best for you.

• You must opt-in to your bank's plan before your bank can apply its standard overdraft practice and fee. If you do not opt-in, or specifically opt-out, your debit card will be denied if you attempt to make any purchases that your account cannot fully cover.

• The new rules require flexibility from your bank—you can opt-in or opt-out at any time.

• The new rules do not cover checks or automatic bill paying programs.

So, what do you need to do? Well, that depends. If you have frequently been charged overdraft fees in the past, these changes could be the perfect opportunity for you to look at your budget and reassess where and when your funds are coming into and going out of your account. Opting-out of your bank's plan will ensure that you aren't spending more than you have, and make you aware of it if you try to do so.

If you don't often get into a situation where you are charged an overdraft fee, you may choose to opt-in to your bank's plan to cover your purchases on the rare occasion you try to make a purchase you can't cover. But be sure you have thought through whether the fee is worth it. It may be advisable to put down a pending purchase and instead wait until payday, or transfer the necessary funds into your account.

Either way, make sure you understand all of the options you have, and all the fees your bank may charge. Contact your bank if you have questions about their overdraft plan and fees.
For more information and tips on how to avoid fees completely, see Protecting Yourself from Overdraft and Bounced-Check Fees and these tools for Budgeting and Saving.