According to an October 2009 study conducted by the Center for Responsible lending, overdraft fees on traditional bank-linked debit cards have risen over 35% since 2007. The study shows that the cost of overdraft fees now costs Americans more then vegetable, cereal and books. While approximately 51 million Americans face these astronomical costs, pre-paid debit users are free of this financial burden because pre-paid debit cards cannot generally be overdrawn. Overdraft fees are charged when a traditional bank-linked debit card is used for a purchase and there is insufficient funds. Writing checks or instituting automatic payments from a bank account when there are insufficient funds can also trigger overdraft fees. Banks often do not allow people to opt out of the fees, or have customers sign up under the guise of ‘overdraft protection,’ which is just another, slightly different method of triggering a fee. Some banks also have confusing systems for applying payments, or pay the largest bills first. This means that if one large payment clears out the funds in the account and you have several small transactions or payments, each of those small transactions or payments could trigger an overdraft fee that averages around $35.00.
These costs can quickly add up to astronomical sums, and bank account holders can do little to resolve the problem. While consumer advocates urge government reform and legislation to protect the consumer, consumers can protect themselves by choosing pre-paid debit cards. Reloadable pre-paid debit cards do not carry the same large overdraft fees that standard bank accounts do. Pre-paid debit cards will simply decline a transaction if the funds are not available. In most cases, no fees are charged, and you’re alerted by the declined transaction that it is time to reload the funds on your pre-paid debit card. A simple declined card is a much nicer reminder that your balance is low then a few hundred dollars in overdraft fees.