New overdraft rules for bank customers

You should be aware of new rules that affect all financial institution customers. Effective July 1 for new customers and August 15 for existing ones, rules for overdrafts resulting from ATM withdrawals and debit card purchases will change dramatically.

In the past, most financial institutions allowed overdrafts on these types of transactions as a courtesy to customers. The institutions charged customers fees for paying the overdrafts. And overdraft fees became a significant source of income for many institutions.

The new rules allow institutions to charge overdraft fees, but customers must actively choose to “opt in” to receive the service. The rules prohibit institutions from charging overdraft fees on ATM withdrawals and debit card purchases unless customers have opted into overdraft coverage.

How should you respond to the new rules? Of course, the best response is to manage your account wisely. Preventing overdrafts is the most appropriate course of action. You can do this by recording all your debit card and ATM transactions as well as reviewing your account on regular basis.

You can also work with your financial institution to set up a line of credit to provide a safety net against overdrafts. While there are fees and interest involved, this is a form of insurance in the event there are insufficient funds in your account.

Another approach is to link another account to your checking account. A good example is a savings account. This approach allows customers to cover overdrafts using their own funds and typically involves small transactions fees.

Finally, you might want to opt in to the standard overdraft protection. This authorizes the institution to honor the overdraft but at a substantial fee.

Keep in mind, however, that you can opt out after signing up for the overdraft service. After you opt out, institutions still maintain the ability to pay the overdraft items. Or they can return the items and charge a fee for them.