On July 1st new rules went into effect concerning overdrafts on your debit or ATM cards. You now get to choose in advance what happens when you make a charge on your debit or ATM card and don’t have enough money in your account to pay for it.

Let’s say you buy something with your debit or ATM card but haven’t been keeping track of how much you have in your account.  It turns out you don’t have enough money in there, which means the withdrawal will lead to an overdraft.  According to the Federal Reserve Board Web site there are usually two ways that banks deal with an overdraft:

• Standard overdraft practices. Your bank will cover your transaction for a flat fee of about $20-$35 each time you overdraw your account. For example, if you make a purchase with your debit card for $150 but only have $100 in your account, your account will be overdrawn by $50 and your bank will charge you a fee. If you then make an ATM withdrawal for $50, your account will be overdrawn by $100 and you will be charged another fee. In this example, if the fee your bank charges for its standard overdraft practices is $30, you will pay a total of $60 in fees on $100 in overdrafts.

• Overdraft protection plans. Your bank may offer a line of credit or a link to your savings account to cover transactions when you overdraw your account. Banks typically charge a fee each time you overdraw your account, but these overdraft protection plans may be less expensive than their standard overdraft practices.

So what’s different under the new rules?  Basically, your bank has to give you the option to choose how the bank will deal with an overdraft from you.  In the past, some banks automatically enrolled you in a standard overdraft program when you opened an account with them.  Now, the bank has to ask your (more…)