Overdraft Protection: Friend or Foe?
by Jason C Smith, U.S. Army, Retired and Accredited Financial Counselor
You would be hard pressed to find a bank nowadays that does not provide $300 to $500 dollars in overdraft protection as a benefit to banking with that particular institution. On the Wachovia Bank website, it states, “You’re careful with your finances, but sometimes things just happen.”
Isn’t it re-assuring that your bank is looking out for you by making sure there are additional funds available so you will not be embarrassed at the store if you are not sure how much is available in your account?
What they are not telling you is that it is truly a form of high cost quick credit that can get you into trouble very quickly! Lets say that you have $100 dollars in your account and your purchase comes to $125 dollars. Congratulations! You have just successfully utilized the added benefit of your checking account. Now you owe the bank $25 dollars plus a $20 dollar Non-Sufficient Funds fee by your next paycheck, which they will promptly withdraw for you. If you calculate it like a credit card, your yearly interest rate is approximately 94% for one mistake.
This all may not seem like much, but it really does begin to add up. Especially when it becomes a common ritual in your daily lives. Because each paycheck gets smaller and smaller and the bank is going to get their money. I am not saying that banks are evil, but they are a business and they have to feed their employees.
There are things that you can do to avoid the trap.
- Live within your means (can I be more obvious?)
- Link your checking to your savings account to avoid NSF fees.
- Seek financial counseling from an Accredited Financial Counselor on your installation today!
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