Overdrafting your debit card is basically the same thing as exceeding your monthly credit card allowance: you have withdrawn more money from your checking account than you have there. The difference? Where with a credit card the amount you spent simply gets rolled into your bill, if you withdraw more money than you have in your checking account—whether you go over by a couple cents or fifty dollars—you can get charged an overdraft fee of between $10 and $38.
Even worse, though, banks are starting to get rid of overdraft fees—and they’re also starting to prevent customers from using their checking accounts if they attempt to overdraw. This means that that last $3 cup of coffee that will put you over the limit cannot be purchased. They will cut you off at $0! Unless, of course, you opt into an overdraft protection plan, an extra fee you pay in order to be able to overdraft your account. Most banks would add this extra fee automatically, frequently without notifying their customers of the added service. The fees are fairly steep, but as of July 1, 2010, banks are no longer permitted to apply them to your account without asking.
What are the benefits of overdraft protection? Obviously, it means you can draw extra money from your account. It can act as a short-term loan. But the price may not be worth it—besides the yearly overdraft protection fees, you still have to pay back the money you spent, with interest. If you have used overdraft fees or protection plans in the past as a convenient buffer, now is the best time to stop. Remember to keep track of debit card purchases by balancing your checkbook once a month (or more often, if you need it). It is also possible to hook up your savings account or a credit card to your checking account as a buffer for emergencies.
Keep in mind, you shouldn’t be using this buffer regularly. It’s important to have your options open for emergencies!
Resources Used:
Lieber, Ron. “Overdraft Protection: Why Bother?” New York Times. 12 Mar 2010, B1.
Plate, Shannon. Degunking Your Personal Finances. Scottsdale, Arizona: Paraglyph Press, 2005.
Rose, Adam J. “Overdraft Protection Expires: No More Overdraft Fees Without Opting-In.” Huffington Post. 16 Aug. 2010.
United States Congress. House Committee on Financial Services. The Overdraft Protection Act of 2009: Hearing before the Committee on Financial Services, US House of Representatives, One Hundred Eleventh Congress, First Session, October 30 2009. Washington, DC: US Government Printing Office, 2010.
Jessica attended high school at Ravenscroft School in Raleigh. She participated in swimming, cross country, and track and field. In track, she was Conference champion her junior and senior years in the 100 meter hurdles. In school, her favorite topics were History and English, and in the summer after her junior year, she studied abroad at Cambridge University in England, majoring in European History and English Literature. That summer, she also attended the Tar Heel Girls’ State educational program, and completed the course that enabled her to become a lifeguard.
Throughout high school, Jessica had worked as a swim instructor for the A. E. Finley YMCA in Raleigh, but during her senior year she began to also work as a lifeguard. At the beginning of the year, her article on the development of the Gothic architectural style in France was published in the Concord Review, a national history periodical. In the spring, she made her decision to attend the University of North Carolina at Chapel Hill the following year. Later in the spring, she worked as a research assistant to Professor Michael McElreath of Meredith College. She researched and offered recommendations on potential reading assignments and textbooks for a future course on American Intellectual History.
The summer before beginning college, Jessica worked again as a swim instructor and lifeguard for the YMCA. She began school at UNC Chapel Hill in the fall of 2008. In the spring of 2009, she began work on an article about the changing social and economic roles of women in Mali, a sub-Saharan African nation.The following summer, she completed work on her article while again lifeguarding for the YMCA.
She is now nineteen and a sophomore at UNC Chapel Hill, hoping to major in History with a concentration in non-Western civilizations and a possible minor in Women’s Studies. She enjoys reading, writing, playing the piano, researching, and drawing, and hopes one day to become a professor.
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