Overdraft Fees Are Not the Only Thing to Watch Out For

Recently there have been a number of news articles, such as this one, about overdraft fees because as of July 1^st there is law going into effect which makes banks have to ask their customers if they want to opt-in to an overdraft protection program, versus automatically signing them up for one. In many of the articles I've seen that they fail to mention the fact that certain transactions can incur NSF (Non-Sufficient Funds) fees instead of Overdraft fees and often these fees are the same dollar amount.

My guess is that these articles are mainly focusing on people who do POS (Point-of-Sale) transactions with their debit cards. With most POS transactions, the payment processing system checks your balance before processing the card. If you do NOT have Overdraft Protection and there is not enough money in your account to cover the transaction, the system will decline the card. Overdraft protection is not desirable in POS transactions because you would be charged for your item (which could be as small as a $1 newspaper) and then your bank will also charge you an Overdraft Fee. These days the average Overdraft Fee is around $34. Rather hefty amount to pay just to have your little $1 purchase covered!

Many debit card users however, are also likely to setup payments ahead of time for certain bills or creditors. If you do not have Overdraft Protection, these post-dated transactions will incur NSF fees if they hit your account at a time when there is not enough money to cover them. In this particular situation I would much rather have my bank pay the transaction and issue an overdraft fee over NOT covering the transaction AND charging me an NSF fee. That way you would only need to provide the funds to your bank rather than go back to the creditor and try to redo the payment again. As well, many creditors will charge you a Returned Check fee for any debit transactions that are declined. Returned Check fees are often around $25.

While the news articles on Overdraft Fees have very valid points as well as providing great tips on how to avoid overdrafts, they should still touch upon NSF fees as well. Most people are going to have to look at how they handle their monthly bills and purchases to figure out whether or not they should opt-in for Overdraft Protection. People who do a lot of post-dated bill paying should probably opt-in. Those who do everything with card in hand at the Point of Sale, probably should stay away from Overdraft Protection.

Of course, it also depends on the specific policies of the bank. You may check your bank's overdraft protection terms and find out that it is actually a really good solution even for POS transactions. My personal bank has free Overdraft Protection and the fee to cover an overdraft is only $10. For me, this is an excellent plan because I do a lot of post-dated transactions. As for POS transactions, I always check my balance beforehand, (thanks to free SMS banking services through my bank) so I don't incur overdrafts.