Are you a low income family struggling to pay bank overdraft fees?

On the face of it, if your bank offers you an overdraft protection option (or facility), it’s nothing but good news, but it does come with risks. On the positive, a low income family will have something other than a credit card or high interest loan to depend on when money gets tight. The overdraft protection can help you save face or give you extra money when you need to cover essential expenses.

But there are downside to overdraft services too. In reality, though, the overdraft protection that many banks offer often only works against your interests. Unlike credit cards, you get charged hefty fees the moment you overdraw, and low income families or those living paycheck to paycheck (like most Americans) will struggle to pay them. Average single-time fees for overdrafts stand at about $60 according to the CFPB, and many banking customers pay as much as $200 a year for the facility. In fact, in 2017 Americans paid a total of 34.3 billion in overdraft fees according to Moebs Service.

As consumer rights activists often warn, if your bank offers you the overdraft protection option, it’s probably not a good idea to use it unless you are exceptionally good with numbers and money. Considering how studies show 82 percent of Americans are stumped by basic quizzes in arithmetic and about 90% lack basic financial literacy, you may do well to find out how to shut down your bank’s overdraft plan or at least learn how to manage the fees and penalties involved.

Do not sign up or opt out of your bank’s overdraft plan

By law, overdraft protection is supposed to be an opt-in service, not something that’s given to customers by default. Most American banking customers with overdraft protection, though, do not remember opting in. Close to 70 percent of all banking consumers would prefer they didn’t have overdraft protection. Whether or not you believe you have overdraft protection, it’s important to go to the bank, check out the specifics of your account, and ask to cancel the overdraft option if you have it.

Link your bank account to a credit card account

The reason for doing this is to limit overdraft charges. It is not meant as a long term solution. But if you accidentally (or need to intentionally) draw down your account, some lenders allow the balance to be placed on a credit card. But if you do this, be sure to pay off the balance on a monthly basis; otherwise you may just be paying 18-20% interest for the card.

Choose the right plan

Banks usually have multiple overdraft plans, but promote the ones that make them the most money. If you need overdraft coverage, talk to the bank to find the best possible plan. Some plans will be cheaper than others. Of course examine the fees and go with the cheapest.

Consider a non-profit credit union

Credit unions do work similarly to the major banks; they charge overdraft penalties too. However, they tend to be far more reasonable. Because credit unions don’t operate for profit, don’t they fleece their customers with high penalties and fees. However many are focused on certain employees (such as teachers), job titles (military members), or similar positions, so they may not be open to the general public.

Use other forms of funds for emergencies

Some people relay on drawing their account into a negative balance (overdraft) as they need emergency cash. But the APR rates can be in the hundreds of percents due to the fees and costs we indicated. Instead look for other forms of assistance for paying bills, even loans with no interest costs (for the short term anyway). It is a better source of emergency funds.

Link to any other accounts

While every bank will charge you a penalty the moment you overdraw, some will impose a second penalty when you fail to bring your account back into the black in a couple of days. It’s possible to escape the second penalty by linking your checking account to either a money market fund or a savings account. The moment such a link is created, any overdraft is instantly refilled.

Don’t 2010 regulations protect consumers?

In 2010, after the financial crisis, regulations made it harder for banks to simply charge their consumers anything they wanted. Banks needed to make disclosures about overdraft charges, for instance. Customers also needed to opt in. However, the rules have done little in reality, and the banks tend to word their disclosures in language so complicated, no one understands what they do anyway.

The regulations haven’t even done much about transaction reordering, the practice wherein banks will hold on to any checks written, and process them the moment they see that doing so would cause the account holder to both bounce and overdraw. Citibank has a strange new rule by which overdrafts are offered only in $100 increments. This means that even if you overdraw by $10, you pay as though you’ve overdrawn by $100.

Overdraft plans may be convenient, but they are unpredictable and give the banks too much power. This quality alone makes them a poor idea. It’s important for consumers to become aware.

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