The Cost of Opting In: The Slippery Slope of Overdraft Fees

September 2, 2014

Courtesy pay, courtesy clear, overdraft services, overdraft transfers….if you have a debit card, you have probably been asked to opt-in to a debit card overdraft protection program that goes by one of these names.

Basically, the bank is asking what you want them to do if you are using your debit card for a transaction that you don’t have enough money for. If you do not opt-in, the transaction will be declined.  If you do opt-in, the transaction will be approved and you will be charged a fee. For example, if you have $50 in your checking account, and you swipe your debit card for $75 in groceries, the bank will go ahead and approve the transaction, charging you a fee for the service.

This sounds like a great convenience, and for some people it is. No one wants to be stranded on the side of the road out of gas, embarrassed in the check-out lane, or declined when paying for a meal at a restaurant. I think many people would happily pay a fee to avoid those situations.

The reality is that opting-in to this service is giving the bank permission to charge you fees.  For the bank, the fees are a large part of their income. So much so that in August of 2010, new federal regulations stated financial institutions could no longer charge a fee if you overdraw your checking account using a debit card or an ATM, unless they have your consent.  Financial institutions launched these new opt-in programs as a service you could consent to pay for.  Many Americans opted in and essentially agreed to pay over 30 billion dollars in overdrawn debit card fees last year alone.

Opting In

When used appropriately, debit card protection programs can be convenient. In an emergency situation, having that “cushion” can be extremely helpful. It can also prevent merchant fees if your automatic payment, like the electric bill or insurance, is declined due to not having enough funds in your account.

However, that emergency may end up costing much more than the actual bank fee. It’s important to take the time to read and understand the fee structure used by your bank.

Bank A:  You’re at the gas station and you don’t have enough money to fill your tank. Bank A will charge you a $35 fee to approve your purchase by using the opt-in debit card coverage program. If you purchased $50 in gas, it really cost you $85.

Bank B: Bank B will charge you a $34 fee to approve your gas purchase using  the opt-in debit card coverage program. In addition, they will charge you a $5 fee each day that your account is overdrawn. If you go to the gas station on Monday and don’t get paid until Friday, that’s another $20 in fees. Your $50 tank of gas now cost you $104.

Bank C: Bank C will charge you a $37 fee to approve your purchase and $28 per day that your account is overdrawn. After 4 days, that’s another $112 in fees. This tank of gas now cost you a whopping $199!

If you opt-in to one of these programs, fees may be charged on transactions without you even realizing it. When you swipe your debit card at the grocery store, the register does not tell you that you’re using the debit card overdraft protection. It just approves the transaction. Go from the grocery store to get a cup of coffee and a haircut and you’ve been charged 3 fees without realizing it.


One alternative way to protect your account and avoid fees is to get a line of credit. This is attached to your checking account and will loan you the funds when necessary. A line of credit will charge interest rather than fees. A 15% interest rate on $100.00 will charge approximately $.04 per day, much less than the average overdrawn debit card fee.

Another option is to set up your checking to transfer funds from your savings account when needed to cover a transaction. This is a great option—but be sure to read the fine print. Some financial institutions offer this service for free or a minimal transfer fee, while others will still charge the same debit card protection fee for each transaction.

Bottom Line

If you want to avoid being blindsided by fees you just didn't see coming, don’t opt-in to any debit card coverage program. It might be inconvenient, but simply being denied a transaction can help you follow a budget and monitor your balances with mobile banking.  After all, who wants to pay $199 for a tank of gas?

This post was written by Chris Hardenberger, a branch manager at Westerra Credit Union. If you’d like to submit a guest post, email us at