Don't Waste Money On Avoidable Overdraft Fees

Last week, the Consumer Financial Protection Bureau (CFPB) launched an investigation into the overdraft fees charged by banks and other financial institutions on checking accounts. But who says government regulators get to have all the fun? Savvy consumers should launch their own overdraft fee investigation — and make sure they aren’t paying any.

Overdraft fees are a huge profit center for banks. Moebs $ervices, an economic research firm, estimated in September 2010 that banks and credit unions would earn $38 billion in overdraft fee revenue in 2011. Those fees can go as high as $35 for a single overdraft. And if you have several transactions process while you’re over the limit you can get charged $35 for each one. That quickly adds up.

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Decide right now that you won’t contribute to the banks’ mind-boggling $38 billion in overdraft fee revenue. Make sure you’re opted out of overdraft protection by logging onto your account or visiting your bank. Banks are now required to get your permission to sign you up for overdraft protection so you’re not in the program unless you agreed to it. However, one of the issues the CFPB is looking into are reports of banks using misleading marketing materials to get consumers to sign back up for overdraft protection. That means it’s possible that you may have opted in and not been entirely aware that what you were doing, so it doesn’t hurt to check.

The CFPB’s inquiry is focusing on checking accounts, but there’s a similar issue with credit cards. You can “opt-in” to over-the-limit fees and your card won’t be denied if you exceed your credit limit on your credit card.

You’ll get hit with a fee, though, which can also be as high as $35. The CARD Act prevents you from being charged a fee that’s higher than the amount that you exceeded your limit. For instance, if you went $20 over your limit, the fee can’t be higher than $20. But why incur that fee in the first place?

Sure, it would be embarrassing to be in line and have either your debit card or your credit card rejected. But isn’t it also embarrassing to realize you just vaporized $20 or $35 for no good reason? Instead, track your spending. Know your checking account and credit card balance like you know what day of the week it is. And if your cash flow situation is such that you really do need a higher limit on your credit card, call your issuer and ask for an increase.

Don’t opt in to needless overdraft protection. It’s one “security” you’re safer without.

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Image: B Rosen, via Flickr.com