Just Say No To Overdraft Protection!

Mar 16, 2017
Checking Accounts, Research, Teaching Strategies, Current Events, Article

It’s a $33 billion error that consumers continue to make. From Wall Street Journal:

Banks and other financial firms in 2016 generated the highest level of fees in seven years related to overdrafts on checking accounts, marking a turnaround for a charge crisis-era regulation tried to rein in.

So-called overdraft fees totaled $33.3 billion in 2016, up about 2.5% from 2015 and by 5.4% from 2011, according to Moebs Services Inc., an economic-research firm. Overdrafts occur when consumers make transactions that are larger than their checking-account balance.

Try this tomorrow in your class:

Ask students who have a checking account if they have overdraft protection (Yes/No/Not Sure). If like most high schoolers an overwhelming majority will answer Not Sure. Well, they will find out when they lose track of their balance and get hit with that $34 overdraft fee which apparently is happening almost 1,000,000,000 (yes, that is a billion) times.

Banks are required by law to ask consumers if they want to opt in to overdraft protection but as the WSJ article notes:

Some consumer advocates, though, have criticized new bank strategies to get consumers to enroll in overdraft services. Those, they say, include wrongly presenting the service as mandatory for new customers or emphasizing scenarios in which people are tight on cash and the feature could help them.

A survey by the Pew Charitable Trusts, a proponent of overdraft regulation, found some 52% of consumers who have paid a debit-card overdraft fee don’t recall opting in to this service.

So, let’s make this simple for students. Let’s teach them ONE thing about overdraft protection: “Just Say No!” when asked or if they have it, go ahead and turn off that feature on their account NOW. Teach them to set up account alerts (we show you how here) to keep closer tabs on their accounts. As one student so duly noted, “The only thing that overdraft protection seems to be protecting is bank profits.”

Here are how the big banks are doing when it comes to overdraft fees:



Here is an NGPF project: Overdraft Fee Analysis that we have found to be very effective at demonstrating the costs of overdraft protection.

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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