Still Paying Overdraft Fees After Opting-Out?

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Imagine a scenario where you’ve opted out of overdraft protection, telling your bank to simply decline transactions when your account runs out of money. You take care to pay all of your bills after verifying that you have enough funds in your account, but mistakes happen, and you've bounced a check or overused your debit card. Somehow, even though you've declined overdraft protection, your bank just made the payment for you and charged you a $35 fee anyway.

Since 2010, banks are required to get your permission to provide overdraft protection on your account. Before then, you had it whether you wanted it or not. Now, instead of opting-out, you need to opt-in for your bank to lend you the money to cover debit card purchases, electronic and paper check transactions if you're short on funds.

The idea behind the 2010 law was to prevent the “$39 latte,” which happened when your bank charged $35, even if you were only a few cents short on a debit card purchase. Most people, understandably, would prefer to find a different way to pay, or just do without the coffee.

Types of Transactions

The ability to opt-out of overdraft protection only applies to one-time transactions with your debit card. When you make a purchase at a retailer, or when you withdraw cash from an ATM, your bank will usually prevent the transaction if you’re out of money, and you won’t owe any fees.

But other types of transactions can cause problems. In some cases, the transaction will be processed even if you opted out of overdraft protection and didn’t have the funds available. When that happens, you’ll pay a fee that’s the same as an overdraft charge, and you’ll need to come up with the money to bring your account balance back above zero. In other cases, your bank will reject the transaction, but you’ll be charged a fee for insufficient funds.

  • Recurring Payments - When you sign up for automatic electronic payments, your bank might process those payments even if you don’t have enough money available. For example, you might have a monthly membership fee billed to your debit card, or you might pay insurance premiums every month directly from your checking account via ACH.
  • Payments By “Check” - Checks are still surprisingly common, and you can make payments by check even if you don’t write the check yourself. Your bank’s online bill payment system sometimes prints and mails checks for you. Whether you do it the old-fashioned way or let your bank handle it, you run the risk of bouncing a check. Any one-off checks that aren’t regular monthly payments can be processed by your bank, resulting in a negative account balance and hefty fees.

    Find out how your bank handles these situations. Each bank is different, and some simply reject monthly payments when you run out of money, while others let them go through. Contact your bank and ask what policies are in place for your account.

    Avoiding Trouble

    Although your bank might not do much to help out, you can do a few things to avoid fees.

    • Monitor Your Accounts - Monitor your accounts so that you always know how much money is available. If you’re running low, make sure no more payments hit the account until you can add money, or transfer money over from another account. If you balance your account, you’ll ​​know how much money is coming in and going out even before your bank does.
    • Sign up for Alerts - Sign up for alerts that tell you when you’re running low on money or when checks start bouncing. A quick text message or email can help you stop the bleeding.
    • If You Can’t Beat ‘Em, Join ‘Em - Overdraft fees and insufficient funds charges are expensive, and it just gets harder to cover your expenses next month. You need to spend within your means, but you also need to minimize bank fees. Especially if you have money in savings but just forget to transfer it over, see if your bank offers a less expensive form of overdraft protection. You might be able to have the funds drafted from savings for about $10, or you might pay even less with an overdraft line of credit.