Today many banks are losing money due to the poor economy and increased regulation. To make up for these losses, most are adjusting their policies to make an overdraft fee more likely, while significantly raising the associated penalty fees.
Most consumers don’t realize that debit cards connected to checking accounts usually come with automatic overdraft coverage, which means that a charge will be paid by the bank, rather than be refused. Banks may market this as a convenience for their customers–a wonderful benefit that means their customer’s card won’t be rejected at the checkout counter–but the hidden danger of that policy is the high overdraft fees that occur with each purchase over the checking account’s balance.
Poor budgeting or faulty math may lead to overdraft fees that can add up in a hurry. It’s like bouncing a check every time the card is used when no funds are present to back the purchase. Consumers are waking up to the realization that the overdraft protection is not an outgrowth of their banking institution’s altruistic attitude, but may be a savvy way to increase profits. It is well documented that banks earn millions of dollars from overdraft fees each year.
Prepaid debit cards are increasing in popularity with consumers who have been burned by excessive overdraft fees. In addition, they like the built-in budgeting protection that a prepaid debit card affords. Users are able to preload the amount they want to the card, with the assurance they won’t overspend their budget when their record-keeping fails. The consumer who knows their tendency to overspend is able to prevent in advance binge buying and non-planned sales fueled by emotion rather than common sense. Using a prepaid debit card to assist with good budgeting while putting an end to high overdraft fees is a dynamic financial combination more consumers are choosing every day.
Jessie's Note: Have you ever used, or known someone that used pre-paid debit cards. This is a service that I have never utilized before. I wonder if it would work for loading ones 'jar money' onto it for people who don't like carrying jars/envelopes around.