You can still have a savings account or a line of credit "linked" to your checking account to transfer money from in the event your run your debit card or write a check and there are not enough funds in your checking. The kicker is, now some banks and credit unions are charging a "overdraft transfer" fee. From what I've seen, this fee is lower than the big NSF fee you would otherwise be charged to allow the item to go through your account (the $30-39 one), but you're still being charged just to have automatic access to your money. From what I've seen at the banks, the fee is around $15.00 per transfer...... Let me say that again, PER TRANSFER!!! That's crazy!
Some of the credit unions I've reviewed the fee is about $3.00 per transfer... that's a little more understandable. Because what we usually don't hear about is the 'behind the scenes' work this legislation has created. However, this is just one of many reasons why you should heavily consider banking at your local credit union versus a bank. Banks are for profit, credit unions are not.
It use to be, if you have an account set up for ODP (Overdraft Protection), such as your savings or line of credit (ie, your credit card), when your checking account needed money to cover a debit, it would transfer it and most of the time it was free to do so from your savings, and possibly, from your line of credit.
Most of the time when you use a line of credit, such as a credit card, as ODP, the money used for that purpose is taken off the line in the form of a Cash Advance. Depending on the type of card your institution offers, the rate is usually higher than your standard purchase rate, and most of the time at banks, they charge you a "cash advance fee", generally 5-10% of the advance amount, or a minimum like $10.00, PLUS the higher APR on that balance you needed to cover that purchase or debit from your checking.
"So what's your point?", you're asking. First point, is to make sure you know how your bank operates when it comes to overdraft protection. Did your Wells Fargo bank tell you they'd charge you $15.00 a pop just to transfer your OWN money from one account to another automatically? Do you think that's appropriate, or a little over kill?
Also, when the cash gets tight and you need to get some bills paid, be smart about how you do it. First, wherever you hold your checking account, they most likely offer a credit card too. Make sure it has a respectable Cash Advance rate, and $0.00 CAV (cash advance) transfer fee. Why? Well, you're going to get a double whammy on fees if there is a ODP Fee, PLUS a CAV fee. So you gotta break it down, so you can see what makes most financial sense to get you through the tight times.
Let's do a quick example. You have 3 bills that come out of your checking at the end of the month on the 30th, but you don't get paid until the 5th of the following month. So you have a small dilemma. How do you pay those three automatic debiting bills? You could let your account overdraw and get a NSF fee PER item (let's say it's $35/item), that would be $105.00 in NSF fees, not counting a daily 'negative account balance' fee that might be applicable.
We're going to assume that your overdraft protection savings account is empty. So that option is out the window. Everyone should have even a small line of credit for this type of thing. So your next option is to look at how much you need to cover (let's say, $300) and how much it would cost to advance that from your line of credit to cover it.
If you have a credit card at the institution (like you should), and the cash advance APR is 15%, and there is a 5% CAV fee, we should look at how much it would cost to come at this proactively, and transfer the money into the checking before the bills actually hit.
The first thing you have to think about it is, how much in an additional fee (CAV fee) will it cost me? In this case, we need $300, and 5% of that is $15.00. That's our first fee. The next fee is, the cost in interest. This is where we get to do some math! :)
We don't want to plan on keeping the balance on the credit card--ever. We're just using it as a TOOL (which you'll hear me say over and over again), and paying it off once our payday arrives. So the first thing we have to do is take the Annual Percentage Rate (APR), and convert it into its equivalent Daily Interest Rate, so we can apply that to the balance and figure out how much interest we'll be paying.
Since our card has a 15% APR, we need to take that and divide it by 365 to get the 0.09589% daily rate. Multiply that to the balance, .09589% x $300 = .009589 x 300 = $2.88 per day in interest. So now we can figure out what costs we have to deal with to compare to the option of letting the bills come out and get NSF fees.
We know we'll have 5 days before we get paid, therefore, $2.88 x 5 = $14.40; we know the bank will charge us $15 to perform the cash advance, so we have a total amount in fees of $29.40.
So, in my book, if that's your only option, it's better than paying $105 to pay these things you must pay.
Some might be thinking that's a lot of work just to figure out I'm only paying the equivalent of one NSF fee versus three of them. But, it's developing the habit of this bit of research because what if you needed $900 to cover your bills for 3 days? Now it might not be so cut and dry since your CAV fee alone will be $45.00. Make sense? I think so.
The other thing to keep in mind is if your institution does implement a ODP transfer fee, and you know you've got bills coming out soon that will need some of your back-up money, why not be proactive and make the transfer before the system does so you can keep those fees in your account?
Managing money is not everyone's favorite thing, I get that. However, if you let the bank babysit you, you will pay them to do so. With the amount of technology out there that allows you to view your accounts online, on your smart phone, via text message, etc., stay on top of it and save those pennies, so you can spend the dollars... on your terms! :)