You might have noticed that your bank has been bothering you lately with letters, emails, and calls asking you to join their overdraft protection program. You might have thought that most accounts already have overdraft protection. Up until now, they did, but according to new U.S. laws taking effect this summer, banks have to get permission to put you into these programs and many people are reevaluating their value as a result.
Overdraft protection basically covers your transaction when your account does not have the money, but charges you a $35-40 fee to do it. This means that you could be buying a $10 pizza, pay with your debit card, and end up with a $50 pizza if you had to use overdraft to cover it. The dangerous part is you would not know when you made the purchase.
While the banks make it sound as if this is a service you desperately need, the truth is it helps them much more than you. In most cases, the worst that happens is that your debit card gets declined or your check is returned. If you really do need the money to cover something, there are much better ways to get short term credit, and it will not cost you $40. At the end of the day, it is a choice between being denied when you are out of money or being charged $40. That reality makes it a better choice to opt out.