On August 15, banks will have to discontinue so-called “courtesy overdraft” or “bounce protection” for customers who don’t specifically opt in for the service. (Banks were required to get permission from new customers starting July 1.)
The change should save customers a whole lot of money if they don’t sign up, since over-limit transactions using debit cards will simply be declined rather than generate $35-a-pop fees.
But there are still plenty of other ways your bank can gouge you. You probably know about foreign ATM fees, monthly maintenance fees and even fees to talk to a teller. But you may not know about:
Other types of overdrafts. The change requiring an opt-in for bounce protection applies only to debit card and ATM transactions. It doesn’t apply to overlimit checks or automatic payment for recurring bills, which the bank can still process and assess you with a bounce fee. So you still have to pay attention to your balance, and I’d recommend signing up for true overdraft protection, which links your checking account to a savings account, line of credit or credit card. However, you should beward:
Credit card overdraft. Linking to your savings account or a line of credit will typically be much cheaper than having your true overdraft protection linked to a credit card. That’s because overdrafts typically will be treated as a cash advance, triggering fees of 3% to 5% plus sky-high interest rates that kick in immediately with no grace period. Credit card overdraft likely still will be cheaper than bounce protection, but you’d be wise to choose one of the other two options, if available.
Excess activity fees. If you make too many withdrawals or transfers from your savings account, your bank can slap you with a fee. Banks will say this is because of federal Regulation D, which limits such transactions in savings accounts, but the reality is that banks have an option: they can charge fees, or simply refuse to honor the excess transactions. Guess which option many banks choose? Oh, and some banks have their own definition of what constitutes an “excess.” Regulation D says the limit is 6 transactions, but Bank of America starts charging you after 3 if you have less than $2,500 in your account. Know your bank’s limits and make sure you stay within them.
Overdraft fees in “closed” accounts. A bank can honor outstanding checks and recurring payments, generating bounce fees, even if you’ve closed the account and taken your money elsewhere. If you’re switching banks, follow these rules for a bounce-free transition.
Returned deposit fees. You get a check, deposit it and see the amount reflected in your balance. You start spending the money, only to get a notice from your bank that the check wasn’t good. Not only are you out the money, but you’ll likely have to pay a fee on top of that, plus deal with any overdrafts the bad check caused. It’s hard to avoid getting stiffed this way, but you might want to avoid spending any deposited money for at least a week. If you get assessed a returned deposit fee, you can add that to the amount the check writer owes you.