Overdraft Protection

by astanhaus

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One requirement I did not list on my how to pick a bank criteria was protection, which I would like to clarify.

We all need our banks to be FDIC insured. We need to be protected from a bank run à la It’s a Wonderful Life.

But as I see it, overdraft protection is not necessarily a necessary monthly expense and I chose to forego the protection my bank offered for a monthly fee.

Here was my train of thought:

If I attempt to overdraft (AKA attempt to spend more $$ than what is in my account), I want to know it! I want the charge to be embarrassingly declined. It will be more embarrassing (and very expensive) to not know I am overdrafting and instead, continue to spend like I’m in the green, when I’m really in the red.

Plus, there are at least two ways to avoid overdrafting.

I have set up low balance alerts through both my bank and my favorite personal finance website, Mint.

If I’m really in a pickle, I’ll put the charge on my credit card or —only during emergencies—use $$ from my emergency fund.

The way I see it, overdraft protection is a needless monthly expense and I try to avoid all needless monthly expenses. Instead, I have a protection plan of my own with my low balance alerts and a plan of last resort if my account does—God Forbid—run out.

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(Originally published on Amanda Stanhaus’s financial literacy blog: XO, Bettie.)