US Bank Courtesy Overdraft Protection Demystified

The insider who tipped us off about US Bank allowing customers to opt-out of courtesy overdraft protection wrote in again. He further describe how overdrafts and courtesy overdraft protection works, and why he thinks you should avoid them both and their stupid fees too…

By default, when a consumer opens a checking account (and only a checking account) they are automatically set up to have overdraft items paid to a certain limit. This limit is dynamic, it changes over time for each individual, it can be $50 or $750. This limit is how far an account can go overdrawn before the card will stop working at a merchant. For each item that goes through when there is not an available balance to cover the item, the item ‘overdrafts’ the account.

For each overdrawn item, the bank accesses a fee. US Bank has tiered fees, the first two occasions (rather than items) in a rolling twelve-month period are at $25 per item. For every occasion after that, the fee is $34 per item. These fees are called overdraft fees. US Bank tops out at a max of six overdraft fees per business day. Leave the account negative for four consecutive calendar days and a $7 daily fee gets tacked on until the account is paid off or forced closed.

These fees are scary and unfortunate. To prevent oneself from accruing these fees, one can apply for an overdraft protection account. US Bank offers three types of these accounts. One is a plain-old love-em or hate-em credit card. This will allow your account to pull the necessary funds out of your available credit limit. There is a $10 fee for each of these transfers. The second type of account is called a reserve line of credit, or reserve line. It is just what it sounds like, an unsecured line of credit similar to a credit card. It is the preferred option to a credit card as the transfer fee is only $2 and the reserve line comes with no plastic card nor any convenience checks. It exists for one purpose, and that is to be a back up. It gets people into less trouble than the credit cards. The third option is for those who do not qualify for an unsecured line of credit. It is a savings or (auxiliary) checking account. The transfer fee is $5 per item covered. This is a good deal compared to the $25 or $34 fees, but the catch with this account is that there must be money in it for it to offer protection.

Doesn’t this all sound ridiculously complicated and unnecessary? I agree, as I’m sure many of your readers do as well. That is why they should look into this opt-out option. It is not opting out of “Overdraft Protection”, but rather opting out of the bank allowing purchases to overdraw the account. In your post you got it mostly right. The only clarification that needs to be made is that what you are calling overdraft protection is actually called “Courtesy overdraft” or sometimes even “courtesy overdraft protection”. The “C” word identifies it as something that is given without asking, rather than an overdraft protection account which must be applied for in order to have.

Internal communication regarding the change:usbweekly.jpgSample letter a customer would receive after opting out of courtesy overdraft protection:bancoletter.jpg

1. If you live close to your balance, keep a close eye on it and only spend money if you have it.
2. Opt-out of courtesy overdraft protection to avoid the associated fees and instead
2. Attach one of these to your checking account in case of accidental overdrafts:

  • Savings account with money in it
  • Credit card
  • Reserve line of credit

PREVIOUSLY: US Bank To Let You Opt-Out Of *Courtesy Overdraft Protection

(Photo: northernplateguy)