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Consider Opting-Out from Your Banks Courtesy Overdraft Protection

Some banks offer what is known as “courtesy overdraft” protection or “bounced protection”. It's different from the traditional overdraft protection in that most customers end up getting courtesy overdraft without even knowing they have it. Often, you have to opt-out if you don't want the protection. At first glance, it seems that having the bank cover you if you make a mistake is a good thing to have – after all, it saves you from embarrassment at the checkout line if you have made a mistake and write a check or swipe your debit card for more than what you have available in your checking account, right?

The problem with courtesy overdraft protection is that if you make a small miscalculation and a transaction goes through causing you to overdraw your account – now you're going to pay an over-the-limit or overdraft fee (typically $39 PER transaction) and suddenly you're paying much more than you expected to pay. If you have automatic payments coming out of your account with courtesy overdraft protection, each time an individual transaction hits your account you're going to pay an additional fee, so if 4 different transactions hit your account in the same day, you will receive a fee for EACH ONE of those transaction! At $39 each, you're looking at spending $156 more than you anticipated – and the error may have been as small as a penny that started the problem!

One of the primary differences between the courtesy overdraft protection and traditional overdraft protection is that the courtesy version may not clear all types of overdrawn transactions. They can pick and choose which transactions to cover and which ones to deny – where as with traditional overdraft protection you pay an annual fee and sign a contract that states all withdrawn transactions are covered under the protection. With traditional overdraft protection, you typically pay interest on any balances overdrawn, instead of a hefty fee per transaction.

Interestingly, banks are also not required to disclose the interest rates of their courtesy overdraft or bounced check protection plans so you may be in for a bit of a shock the first time you make an error in your checking account!

Janet Shine
Janet Shine   |     |   Comment #1
FAIR WARNING...opt out of the so called "courtesy overdraft"! An unauthorized ACH check for over $500.00 from a Walmart in NC "cleared" my mother's checking account in NJ. It racked up over $300 in overdraft fees, not to mention wiping out her checking account balance. It's been 2 weeks and still no access to any funds. The bank could care less about their 82 year old customer on SSecurity. IF there was NO overdraft protection, the check would have never cleared her account!!!

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