Banks will no longer offer overdraft protection

Overdraft protection will no longer be available for new bank customers.

The Federal Reserve announced new rules that prohibit banks from automatically enrolling customers in overdraft protection programs.  The new rules, which covers only ATM and debit card overdraft protection plans, will be effective July 2010.

Overdraft protection is when banks charge fees to customers who spend on a debit card or withdraw from an ATM more money that they have in their checking account.

"In recent years, banks have begun to tell their customers, ‘you are now eligible for automatic overdraft protection. If you write a check for more than what is in your account, we will now automatically cover your check, which means no more bounced checks,'" said Harlan Smith, professor of economics.  "But in reality this protection cannot be free. Banks must assess a fee each time you access this protection, by writing a check for more than you have in your account."

Jeff Margolis, financial consultant of Wells Fargo in Charleston, said students should be aware of the new policies and take into account what they are doing presently.

"Students should be aware that what they are doing now will affect what they do in the future," Margolis said.

Margolis said students should sign up for low balance alerts. Most banks will alert customers by e-mail or text message if their balance has fallen below a certain level.
"Once you get that alert, hold off on additional purchases or withdrawals until you've got more money in your account," Margolis said.

Students should also consider linking their checking account to their savings account.
"Once you've established a link, your bank will withdraw funds from the savings account to cover the overdraft," Margolis said.  "This service customarily costs $5 to $10 per transaction. While it's not free, it certainly beats a $35 overdraft fee."

Margolis said students should keep extra cash at all times so there is a low possibility of overdrafting for an emergency expense or incorrectly calculating their balance.

"Check your balance before going to the ATM, and only withdrawal what's available," Margolis said.  "It may seem obvious, but it's still a method of avoiding overdraft fees."

Deanna Bailey can be contacted bailey360@marshall.edu.