Yesterday marked the first day that banks had to ask your permission before automatically opting you in to overdraft protection when you open a new account. They have until August 15th to beg existing customers to keep the coverage, at which point everyone who doesn’t actively choose it will be opted out. Some banks, like Bank of America, are abolishing their overdraft protection program altogether. As for the rest, don’t fall for the queries asking you to sign up, because most of their arguments just fall flat.

Overdrafts Don’t Affect Your Credit Score
Overdrafts don’t hurt your credit score. That’s because checking and savings accounts don’t appear on your credit report. They’re not loans or debts, they’re cash, and therefore not reported to credit agencies.

Overdraft Protection Doesn’t Save You Money
The new rules only apply to ATM and debit card transactions, not bounced checks, so overdraft protection won’t save you money on bounced check fees. In fact, NOT having overdraft protection WILL save you money because your purchase or withdrawal will be rejected. So, just make sure you always have $20 in cash in your wallet or access to a credit card in case you’re at a restaurant and didn’t realize your balance is low.

Checks and Automatic Bill Payments Are Exempt
If you write a bad check, you’ll still get hit with fees. The same holds true if an automatic debit hits and you don’t have the cash in your account. So if you opted into OP to protect your mortgage payments, you might as well opt-out. OP doesn’t protect you.

Overdraft Protection Alternatives
So what you can do to avoid overdrafts from any source? It’s actually quite simple.

1. Track your spending and upcoming debits. Don’t rely on your ATM balance to tell you how much money is in your account. You may have other payments that will hit that same day and put you over the limit even if your debit cleared earlier.

2. Sign up for low balance alerts. Many banks offer a program that will send you an email or text alert if your balance drops too low. Then you can either stop spending money or find some cash to deposit into your account before you overdraft.

3. Budget. Budget. Budget. It’s that simple, people.

4. Use a credit card. If you have a credit card, then charging the purchase may be cheaper than a $20-$35 overdraft fee, even if you have to pay interest for a month or two. Of course, this assumes you can actually afford the thing you’re buying. If you can’t afford it, then no amount of overdraft protection will make it affordable.

So, have I convinced you that you don’t need overdraft protection? If you still feel you need it, then you also need to ask yourself some hard questions about why you can’t balance your checkbook and spend within your means. Is spending hundreds of dollars a year on overdraft protection really helping your budget?

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