Ask Andy: New rules on bank overdraft fees

By Andy Wise - bio | email

MEMPHIS (WMC TV) - Look, I'll be the first to say we wouldn't have issues with overdraft fees if consumers were more responsible with their personal finances.

But the banks make it worse when they ALLOW customers to withdraw more cash than is in their accounts from ATM's. It's disingenuous to allow that practice, then hit them with exorbitant overdraft fees.

Starting this year, that practice stops.

The Federal Reserve has issued a new rule with the authority of law. The rule forbids banks and credit unions from levying overdraft fees when they have allowed customers to exceed their balances on ATM transactions. The exception is if the customer has opted for overdraft protection. In that case, the bank may levy fees to cover the protection service.

But like everything else that comes from the government, there is a catch. Actually, two catches.

The rule does not apply to either check or online payment overdrafts. Just ATM withdrawals.

And get this:  the rule does not go into effect until July 1 for new customers, August 15 for existing customers. The Federal Reserve says that's to give financial institutions time to implement it.

Sounds like a cave-in to the banks to me.

Anyway, here are some ideas that can help you avoid overdraft fees:

* Consider setting up an overdraft line of credit with your bank. You overdraw, your line of credit absorbs it. But expect to pay interest on that line of credit, plus fees.

* Link your checking account to a savings account with the same bank.  Any overdraft will be covered with a transfer of funds from your savings.  But again, you'll pay transfer fees.

* Link your account to a credit card you have with the bank. Again, you'll pay interest and probably a cash-advance fee.

There's always one fool-proof option against overdrafts:  balance your checkbook!

Keep up with your ATM receipts and reconcile them with your finances. That'll cost you nothing -- no fees, no interest and none of the hassles that come with hefty overdraft fees.

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