New laws have prohibited banks from automatically enrolling their checking account customers into overdraft "protection" schemes. But many banks are getting creative about convincing their customers that signing up for overdraft "protection" schemes is to their benefit. Don't doubt for one minute that the only people that the overdraft "protection" schemes benefit are the banks. Below are several reasons why you should not enroll in your bank's overdraft "protection" scheme:
- High cost. It costs a lot of money to overdraft your checking account and enrolling in an overdraft "protection" program does not reduce or eliminate that cost. When a consumer overdrafts their bank account it can cost as much as $40 per transaction and some banks have been accused of engineering their overdraft "protection" schemes so that they earn the maximum amount of fees they can. A matter of fact, overdraft "protection" raked in nearly $40 billion in 2009 alone.
- You probably don't need overdraft "protection." What you need is a system of balancing your checking account. First of all, if you don't overdraft your checking account, this is a non-issue; but if you routinely overdraft your checking account, the good news is that the new laws state that if there are not enough funds in the account when you attempt to make a purchase that the transaction must be denied.
- It really isn't "free." One of the biggest selling points of overdraft "protection" schemes is that they are supposedly free. But while they may be free at sign-up, once the "protection" is triggered the costs can pile up very quickly.