Do you have questions about overdraft fees? Follow the discussion between a Mother and Son to learn more in this episode of Personal Finance 101 Chats.
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Kyle: Hi Mom!
Mom: Hi Kyle! What’s up? Aren’t you supposed to be in class now?
Kyle: No, the professor cancelled this morning’s class. Can I ask you about a fee my bank charged me?
Mom: Sure Kyle, what fee?
Kyle: I’m looking at my on-line bank statement--I was charged a $35 debit card overdraft fee this month. I don’t know what this fee is for. I think there has been a mistake.
Mom: Do you still have your bank statement up on the screen?
Kyle: Yeah, I do.
Mom: Okay--look at your purchases and cash withdrawals. Did you ever make a purchase or a withdrawal that caused your account to be overdrawn?
Kyle: What does “overdrawn” mean?
Mom: It means that your account had a balance below zero--you didn’t have enough money in your account to cover the purchase or withdrawal.
Kyle: Hold on, I’ll look it over.
Kyle: I think I found the problem. I bought a pair of shoes at Super Shoes. They were $35.63.
Mom: How much was in your account when you made the purchase?
Mom: Yep, there’s the problem. Even though you didn’t have the money in your account, the bank let the transaction go through, but they charged you that overdraft fee of $35.
Kyle: An “overdraft fee?”That’s not cool! How come, if there wasn’t enough money in my account, they let the purchase go through? I mean now that pair of shoes cost me twice as much!
Mom: An overdraft fee is a service charge for spending more money than you have in your account.
Kyle: I didn’t know they did that.
Mom: When you opened the account, you had to tell the bank that you wanted overdraft protection for your debit card purchases. Do you remember doing that?
Kyle: No. I don’t think so. I don’t remember.
Mom: You can check with the bank, but it sounds as though when you opened the account, you enrolled in overdraft protection -- otherwise -- you wouldn’t have it.
Kyle: I think I do remember signing up for overdraft protection. I thought that meant I would be protected from fees like this.
Mom: If you weren’t certain, you should have asked. Overdraft protection means that the bank will let you make debit card purchases and cash withdrawals even if there isn’t enough money in your account to pay for the purchase or cover the amount you want to withdraw.
Kyle: I am confused, how can they call it protection when it cost me $35?
Mom: The bank “protects you” in the sense that they don’t decline the purchase. You can still use your debit card to buy things or take out cash. But you pay a fee for that service.
Kyle: I don't want debit card overdraft protection anymore.
Mom: That’s no problem; you can cancel debit card overdraft protection any time that you want to.
Kyle: Well, that’s what I want to do.
Mom: Okay, you will have to call the bank.
Kyle: I will!
Mom: But without overdraft protection, if you try to make a purchase that exceeds the amount in your account, the purchase will be declined. And, if you try to withdraw money, and there isn’t enough money in your account, the withdrawal will be denied.
Kyle: Okay, but no overdraft fees, right?
Mom: That’s right.
Kyle: Ok, I’m clear there. Thanks Mom! I have one more question.
Mom: Sure, what’s up?
Kyle: I have my car insurance paid automatically from this same account each month. What happens if I make a mistake and there isn’t enough money in my account for that payment? Will it be denied, too?
Mom: The rules about debit card overdraft protection do not apply to automatic bill payments like your insurance payment, and they do not apply to paper checks. The bank automatically enrolls you in their standard overdraft protection for these services.
Mom: So, if there isn’t enough money in your account to cover the insurance payment, it will still go through. And, if you write a check and there isn’t enough money in the account, it will still go through. But, in both cases you will have to pay a fee.
Kyle: Not another fee! How much will this one be?
Mom: It can be $20 to $35 per overdraft, and more if your account remains below zero.
Kyle: Well, I am going to cancel debit card overdraft protection. And, I guess I better keep track of how much money is in my account so that I don’t have to pay any more overdraft fees.
Mom: I think that’s a really good plan.
Kyle: One more question, Mom.
Kyle: My chemistry books were a little more than I expected this semester. Do you think you could deposit some more money in my account?
Mom: Maybe we need to chat about your budget. Call me tonight.
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