Thursday, August 28, 2014

Overdrafts and Overdraft Protection- Helpful or Hurtful

So when you look at the term overdraft you already think “oh man, I miscalculated on my funds…again.” But how exactly is this affecting you financially? We see an overdraft her or there and we think, well at least the bank paid it or cleared it. Well yes, they might have but at what cost. I was once over a penny on my account. I am not kidding. And guess what happened? I was charged an overdraft fee of $35.00 because of a penny. If that doesn’t sound ridiculous than I can’t think of anything else that does. You’re probably thinking, but that doesn’t happen all the time. Or does it? Did you know that the average charge for which a person incurs an overdraft charge on their account is for 25 dollars? So think of the interest you are being charged. A recent study done on several major banks that had at least 10 billion in assets indicated that people who elect to overdraft protection on their accounts often use the service, whether or not the transaction amount is less than the fee incurred by the overdraft charge. In July 2014, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray made several remarks about the data released in the study. He noted that an overdraft “loan” of $24 for a three day period of time would cost $34 (at least) which amounts to an APR of 17,000%. That’s crazy right? Yes, but check your account and do the math. It might be crazy but its true and it happens every day. So why opt into overdraft protection? Why put yourself in that situation? When you really think about it overdraft protection is hurting you but definitely helping the banks. Research has shown that people who opt into overdraft protection are more likely to have an overdraft on their account, the average being ten times in a year. When you account for just the overdraft fee at $34 that’s 340 dollars in a year in only the overdraft fees. That doesn’t include additional fees you incurred because of the fee being deducted from your account and skewing your financial calculations. So now do the math. Is opting in to overdraft protection really helping you? 

The Legal Eagles Inc.