From DepositAccounts comes news of a new overdraft policy from a national bank:

Seems pretty straightforward, right? 

• If you have overdraft protection, you will need to have a savings account from the bank as a backup funding account. Probably a good idea anyway since it allows you to take your direct deposit of your paycheck and split it between your checking and savings accounts.
• When a transfer takes place from a savings account to cover an overdraft situation there will no longer be a transfer fee (yay!)

So, what are the gotchas? From DepositAccounts again:

The first potential gotcha will be Chase checking account customers who don’t have a Chase savings account and are using their Chase credit card as the backup funding account. If they don’t open a savings account, overdrafts may result in declined transactions and nonsufficient funds (NSF) fees.

A less obvious gotcha may hit customers who do have Chase savings accounts.

A federal regulation limits certain types of withdrawals from savings accounts to six per month, and that includes automatic overdraft transfers. For this reason, banks generally charge a fee for each transfer that occurs after the sixth transfer. In the case of Chase, this fee is called the Savings Withdrawal Limit Fee, and it’s currently $5 per withdrawal.

One important feature of this overdraft policy change that increases the likelihood of customers being hit with the Savings Withdrawal Limit Fee is the amount that will be transferred from the savings to checking account. Currently, automatic transfers are generally in $50 increments. After the overdraft policy change, the exact amount needed to cover the transaction will be transferred. Thus, small checking account withdrawals, like everyday debit card transactions, will likely trigger more overdraft transfers.

My solution: do not have overdraft protection in the first place!

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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