How To Avoid Extra Fees From You Debit Card
Nearly everyone uses a debit card these days, and why not? They are easy to use and convenient. Not to mention, using your debit card is much more responsible than using a credit card.
However, there are some serious disadvantages to using a debit card, of which you should be aware. You may find that using personal checks more often is a wiser decision.
You might assume that banks do not appreciate overdrafts and would consider you a bad customer if you continued to use your debit card with insufficient funds in your checking account. But you'd be wrong.
Financial institutions used to make most of their money by investing the funds you deposited. Today, banks make a lot of their money by charging fees to people like you for specific services. One of the biggest money makers is overdraft protection.
According to the Government Accountability Office, revenue from savings and checking accounts jumped about 48 percent between the years 2000 and 2007.
Banking industry analysts report that money being made by financial institutions through overdraft fees almost doubled from 2000 to 2009 reaching more than $37 billion! More than half of that came from charges applied to debit and ATM transactions.
Consider this...let's say you buy a gallon of milk at the grocery store for $2.50 and use your debit card. You were unaware that your checking account balanced had dropped to zero, and you overdraft the account. Now your bank charges you a $25 fee because you have overdraft protection.
That's equivalent to being charged an interest rate or 1,000% - much worse than any credit card! That's because the fee you're charged for overdrafting is the same with any amount you spend.
Lucky for us, there are new requirements making it the law for banks to ask customers if they'd like to choose the option of declining overdraft protection. If you refuse the service, when you use your debit card or go to an ATM but don't have enough money in your checking account - you debit card will just be denied.
For most people, when their card does not go through they usually have another option such as a credit card, cash or personal checks.
One possible issue with the new rules regarding overdraft protection is that because banks will most likely be losing millions of dollars, they will have to find somewhere to make up the loss. That will inevitably lead to more fees and higher charges for those fees at your bank. Financial experts predict many banks will get rid of free checking completely.
The reason most people overdraft when using debit cards is because they have no clue how much they have in their account. Using checks could be the solution to this problem.
It's true that you can still be charged NSF fees for bouncing personal checks. However, it is also a proven fact that people who order personal checks and use them with a check register have a better grasp on their personal finances.
Keeping a close eye on your finances is very important. An FDIC study recently found that just 13 percent of all checking customers pay 93 percent of all overdraft fees. That 13 percent includes people classified as "financially disorganized."
So start taking control of your finances. Opt out of overdraft protection if you think it could help. If your debit card is denied, you can always use another option like personal checks, a credit card, or even cash.
However, there are some serious disadvantages to using a debit card, of which you should be aware. You may find that using personal checks more often is a wiser decision.
You might assume that banks do not appreciate overdrafts and would consider you a bad customer if you continued to use your debit card with insufficient funds in your checking account. But you'd be wrong.
Financial institutions used to make most of their money by investing the funds you deposited. Today, banks make a lot of their money by charging fees to people like you for specific services. One of the biggest money makers is overdraft protection.
According to the Government Accountability Office, revenue from savings and checking accounts jumped about 48 percent between the years 2000 and 2007.
Banking industry analysts report that money being made by financial institutions through overdraft fees almost doubled from 2000 to 2009 reaching more than $37 billion! More than half of that came from charges applied to debit and ATM transactions.
Consider this...let's say you buy a gallon of milk at the grocery store for $2.50 and use your debit card. You were unaware that your checking account balanced had dropped to zero, and you overdraft the account. Now your bank charges you a $25 fee because you have overdraft protection.
That's equivalent to being charged an interest rate or 1,000% - much worse than any credit card! That's because the fee you're charged for overdrafting is the same with any amount you spend.
Lucky for us, there are new requirements making it the law for banks to ask customers if they'd like to choose the option of declining overdraft protection. If you refuse the service, when you use your debit card or go to an ATM but don't have enough money in your checking account - you debit card will just be denied.
For most people, when their card does not go through they usually have another option such as a credit card, cash or personal checks.
One possible issue with the new rules regarding overdraft protection is that because banks will most likely be losing millions of dollars, they will have to find somewhere to make up the loss. That will inevitably lead to more fees and higher charges for those fees at your bank. Financial experts predict many banks will get rid of free checking completely.
The reason most people overdraft when using debit cards is because they have no clue how much they have in their account. Using checks could be the solution to this problem.
It's true that you can still be charged NSF fees for bouncing personal checks. However, it is also a proven fact that people who order personal checks and use them with a check register have a better grasp on their personal finances.
Keeping a close eye on your finances is very important. An FDIC study recently found that just 13 percent of all checking customers pay 93 percent of all overdraft fees. That 13 percent includes people classified as "financially disorganized."
So start taking control of your finances. Opt out of overdraft protection if you think it could help. If your debit card is denied, you can always use another option like personal checks, a credit card, or even cash.
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