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Overdraft “protection”

Daniel Jalkut:

Annoyed that Bank of America offers free overdraft protection service, but I have to sign up. 3 bankcard purchases each cost me extra $35.

I don’t think you’re understanding it properly. It’s a very misleading name.

Overdraft protection lets you overdraw your account, through checks or check-card purchases, and still lets the transaction clear to the recipient. The bank just effectively issues you a temporary loan for the difference and lets the transaction through normally instead of refusing it. So it’s unlikely that you’ll ever bounce a check or get your card refused, therefore saving you from ramifications of that from the money’s recipients. That’s what you’re being “protected” from. By “free”, they mean that they aren’t charging you interest on these temporary loans.

But the bank still charges you fees if your balance is less than $0. That’s considered a separate risk that you’re not being protected from. So if you overdraw, you’ll still pay that wonderful $35-per-transaction fee.

Nice, huh? You really have to give them credit for this one. This took balls.

Fortunately, you can go into the branch and easily negotiate those fees away if you’ve only done it one or two times and you’re otherwise in good standing.

I learned this lesson a few years ago and have done as much as possible on my American Express card (Blue Cash). I only use the Bank of America check-card where American Express isn’t accepted.