ING Direct Electric Orange Overdraft Line of Credit

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$25 ING Direct New Account Promotion Self-ServeLast year, banks collected nearly $40 billion in overdraft fees, most of it coming from about 10% of its customers. Forty billion. While some of this will be curtailed with the recent CARD Act and its rules regarding opt-in overdraft “protection,” it’s still a staggering sum. Bankrate found that, in 2009, the average overdraft fee was over $30 a piece. While there’s something to said about personal accountability, greed is greed and thirty bucks seems excessive.

That’s why I smiled when I learned that ING Direct does it differently on their checking account. One of the benefits of being an online bank with a fairly new checking account product is that you aren’t a slave to making money. If you were a bank earning billions off overdraft fees, your shareholders would be furious if you jeopardized one of the best revenue streams in the freaking world. If you’re an online bank who isn’t a slave to the money you earn by overcharging your customers, then you can do what ING Direct does – extend an optional line of credit and charge a reasonable interest rate.

ING Direct doesn’t charge you $35 every time you overdraft your checking account. They offer an overdraft line of credit, a pre-set amount up to $500, and they charge you interest. They don’t charge you double digit interest, they charge you an interest rate that would make low interest credit cards look expensive – 4% above their ING Direct Prime Rate.

“Instead of a fee, ING’s overdraft charge for its Electric Orange accounts is an “overdraft line of credit” system that allows customers to write checks or use a debit card for more than their balance (up to a preset amount usually no greater than $500) and pay back the overage with interest, which is the ING Direct prime rate plus 4% (currently 7.25%). While ING customers do pay for overdrafts, it’s not a flat fee, but interest paid on the amount “borrowed.” For example, on $100 at the current 7.25% rate, a customer would pay about 60 cents for one month.” (link)

Incidentally, Everbank uses a similar system of protection via line of credit on their checking account. The difference is that their interest rate is based on the Prime Rate as published in The Wall Street Journal.

What do you think?

{ 21 comments, please add your thoughts now! }

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21 Responses to “ING Direct Electric Orange Overdraft Line of Credit”

  1. Bart says:

    I think it is a smart business move. The consumer is sick of being “taken” by the big banks and this should generate additional competition in the banking sector.

  2. zapeta says:

    Yet another reason to love ING…

    • echidnina says:

      I’ve had nothing but good experiences with them. Their savings interest rates aren’t the highest anymore (and Electric Orange gives something laughable like .1% interest), but I’ve never ever run into a problem with them. That’s a lot more than I can say about other banks I’ve used.

      • JimmyDaGeek says:

        The rate is currently .25% for checking up to 50k, 1.10% for savings. No minimums in either account.

  3. cdiver says:

    I wonder if this has anything to do with the recent changes to Regulation E regarding giving the customer the option of opting out of paying overdraft fees.

  4. echidnina says:

    I love it. I use Electric Orange as my main checking account, and I chose either the lowest or second-lowest amount of overdraft protection ($150 or so?).

    It’s nice to have a safety net when I make an error in my calculations. It’s only happened once (I underestimated my groceries), but I was really glad I had that protection when it did happen! When I saw the mistake the day after, I just transferred the appropriate amount over from my savings. Easy peasy.

  5. im4hunting says:

    It’s great. It’s saved my hide several times and because of it I’ve converted most of my transactions to ING.

  6. I love ING, I use them as my primary checking account. The only reason why I still have a B&M bank account is because it makes it much easier to deposit checks. I hope one day that becomes obsolete as well!

  7. NateUVM says:

    Not sure if this has to do with when I opened my account or not, but my overdraft protection limit at ING is WELL in excess of the $500 mentioned in the piece. Not that I need that level of protection, but I thought it was interesting that it was so different. Was there a recent change to what they are offering for a protection limit? Was I grandfathered in?

  8. Matt says:

    I like this, too. A word of warning, however. To set up the line of credit, they do (or at least *did*) pull your credit and you *can* be rejected for an account if you cannot show a good credit history. My wife had a couple of dings on her credit from the start of repaying school loans and she was not able to get an account.

    I like my ING account, so it’s a great service if you can get it. Just be aware of the above.

  9. eric says:

    I have never experienced it (let’s keep it that way!) but I can appreciate that ING isn’t gauging their customers like big banks do.

  10. MichaelM says:

    My wife used the wrong debit card (ING instead of Wells Fargo) and overdrew the account.

    Luckily it was this way instead of the other way around! I transferred money from one of the savings accounts and paid it back the next day.

  11. daenyll says:

    it’s great if you’re a little late on a fund transfer. That way I can still safely have bills debitted and only pay interest on a day or so while the funds go from pending to in the account.

  12. Joe says:

    You can also elect not to have any overdraft fee. What happens if you charge too much?

    Nothing. The charge won’t go through. Amazing concept.

  13. I noticed this back when I signed up for electric orange last year (have had orange savings for a long time), and thought it was a GREAT idea. This is how businesses should treat their customers- not by sticking it to them w/ fees at every chance they get.

  14. Anthony says:

    Echoing what Matt said above. I started with the $500 protection, and decided to apply for a larger credit line because my mortgage and real estate transactions easily exceed $500 in the first few calendar days of the month. If I remember correctly, there wasn’t an option for me to choose how much more I wanted, they just assigned a limit to me, the process is similar to opening a new credit card account. Now I have over $5000 in protection, which is more than I will ever need.

  15. ebow says:

    My credit union offers this and it’s great! I keep pretty good track of my checking account, but on the few occasions where I’ve slipped up,I’ve had a $2000 line of credit at 8-something percent to cover me. I move money in from online savings, or just take money already in checking from my latest paycheck (usually the cause is payments being debited before deposits are credited), pay off the “loan” plus the few cents of interest, and everything is right as rain.

  16. jb says:

    Hey Jim, what kind of effect does this LOC from ING Direct have on my credit score? Is this considered a negative hit?

    Thanks in advance.

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