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Overdraft Protection Is A Good Thing

The NYT Bucks blog published a post today warning us that banks will start direct mail promotions [3] to get customers to opt into their overdraft protection. While they don’t explicitly say overdraft protection is a bad thing, they do want to help protect against some fear mongering on the part of banks. I think that’s a good thing, we need to keep banks in check, however I also think that opting into overdraft protection is a good thing.

It’s no secret that banks make a ton of money off overdraft fees but it’s one of the fees that you are 100% responsible for. It’s like over-the-limit fees by credit cards, it’s 100% your fault that you overdrafted your account. Not only is it entirely your fault, it is usually better for you to pay the overdraft fee than to have the check bounce. I think there should be limits to how many overdraft fees you should be charged in a particular day (you write three checks, you should only be hit with one overdraft fee and two bounced checks… not three fees), you probably want your mortgage or rent check to go through even if you’re short a few dollars. (plus, you can always ask to have the fee waived [4] if you don’t do it often)

Overdraft fees hurt. At an average of thirty bucks a pop, that’s more than an hour or two of work (if not three or five after taxes) for many people. You shouldn’t be someone who “overdraws your account with any regularity” and at $30 a pop, that alone should be enough to change your behavior. If it isn’t and you still overdraw with any regularity, then it’s probably not that important to you anyway.

When people lambaste banks for earning money this way, remember that this is a case where it’s the customer’s fault. Banks might play some games to maximize their revenue, but it still starts with someone writing a bad check.

When I get that letter, chances are I’ll be opting in.

What do you think about overdraft protection? Scam? Safety net?