Destination England

Our journey from debt to England…and everything in between!

Overdraft Charges

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Bank of America recently announced that they would be dropping overdraft fees on debit card transactions. This comes after late last year the Federal Reserve Board announced rules that would allow customers to opt in for the overdraft protection, and would not charge without first notifying them.  Essentially, since they can’t do it at the register on debit cards, those purchases would be declined. I have to say I am very happy to see this! Now these new rules basically still allow banks to charge the overdraft on checks, or reoccurring debits, but for the most part – if you don’t have the $3.40 to cover that cup of coffee, you’re leaving empty handed.

I used to live off overdraft fees it seemed like, and until I finally got a grip on my finances it was a nightmare.  Imagine paying an extra $35 for a $5 purchase.  Quite often that is what that McDonald’s meal or that pack of cigarettes would cost me!  For $40 I could have bought a carton of smokes (back then it was about $43 a carton after tax). I know people who don’t care and joke about “catching up next paycheck.”  I used to be one of those types of thinkers.  “Well, I’ll probably get hit with a charge, but I get paid of Friday, so it’ll be ok.”  Consider this.  Let’s say your bank charges you $35 each overdraft.  You buy gas for $30, lunch for $7, and coffee for $3.  Afterward you only have $25 in your account!  So that take of gas costs you $65, your lunch was $42, and your coffee was $38.  Your $40 expenses just cost you an extra $105!

Recently, I had a budgeted for electric and cable bills to be deducted from my account on Payday Friday.  The problem was, however, I got my dates mixed up and the date I put for the bill to be paid was actually for Thursday, not Friday.  In this case, I was thankful for the overdraft fees, because while, I went over, my bills were paid, and it was a simple fix of moving some money from savings to checking to make it up. It’s what I and many others refer to as “Stupid Tax.”  So the overdrafts aren’t always a bad thing.  However, I think it’s a bit shady that if I bought a $3 cup of coffee and couldn’t cover the costs, the bank would charge $35 for the privilege of getting that cup of coffee.  I think I’d rather have just skipped it!

In England, from what my wife explains to me they have an overdraft system similar to a loan.  You opt in to have a certain amount you can overdraw by.  That amount is then charge a percentage of interest that you pay back.  So instead of getting hit with a charge for each item, you get a certain amount of cushion, and then pay it back plus interest.  I would say that way is probably preferable over a $35 a pop overdraft fee per overdraft.  However, a recent article states five million Brits are ‘permanently overdrawn’! I have already told Sarah when we move over there, I don’t plan to have an overdraft fee for my account, though we may have one on our joint account.  I just don’t want to live with the temptation.

I think this is a step in the right direction for banks here in the US.  Having grown a little over the last few years, I would rather be denied that purchase at the start (and in my case the likelihood of it being an impulse buy is pretty high), than be charged a huge fee for the convenience of being able to get that purchase I couldn’t afford to begin with.

What’s your take on overdraft charges or fees?

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Written by Jas

March 13, 2010 at 7:30 am

Posted in Debt, England, Finance

Tagged with , , ,

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