Hikes in checking-account fees by big banks have recently drawn more attention than overdraft charges--those sneaky debit-card fees that can add $35 to the cost of a $3 cup of coffee. Despite federal rules on overdraft fees that went into effect in 2010, banks are still making billions of dollars from them.

That’s because many bank customers opt in to overdraft-protection programs.  Overdraft protection allows you to use your debit card for purchases even if you don’t have enough money in your account to cover payment. Each overdraft incurs a fee of about $30 to $35.

Under the 2010 regulations, banks must ask you to choose overdraft protection rather than enroll you automatically. If you opt out, you can still be charged a fee if an overdraft occurs from a check you’ve written, an online payment, or an automatic recurring debit.

What can you do to avoid overdraft fees?  A recent article in Consumer Reports Magazine recommends:

• Decline overdraft protection. If you’ve already signed up, you can contact your bank to opt out. Your debit card will be declined if you exceed your balance, but you won’t get hit with overdraft fees.
• Link your accounts. Ask your bank to link your savings to your checking account for overdraft protection. You might get hit with a transfer fee, but it’s generally lower, about $5 to $10.
• Consider an overdraft line of credit. Any overdrafts will be covered by the line of credit. They will incur interest but you’ll probably pay less than overdraft fees.
• Budget better. Sign up for e-mail or text alerts to know when your account balance falls to a certain level. Balance your checkbook regularly, and keep track of all checks you have written, debit transactions, automatic bill payments, and direct deposits. 

These are important money-management lessons for students to learn before they move away from home.  Share them.

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