Why overdraft protection doesn't protect your hard earned money

(WXYZ) - High bank fees, including charging for debit card use, had people taking to the streets last year. Some banks caved on that issue. But Consumer Reports says that hasn’t slowed banks down. They’re racking up  billions of dollars in overdraft fees.   

Sharon Drapeau signed up for overdraft protection on her checking account, thinking it would protect her from penalty fees if she overdrew. Instead …

“I got hit with the bank charge for the transfer and the bank charge for the overdraft, and because I had written a check I got charged the returned check fee,” Drapeau says.

What's going on?

Consumer Reports’ Greg Daugherty says government rules that went into effect in 2010 were supposed to help curb abusive bank fees, but it hasn’t worked out that way.

"Now your bank must get you to sign up for overdraft protection. Then it will cover you if you spend more money than you have in your account,” according to Daugherty.

For instance, if your account is overdrawn, you’re still able to use your debit card to buy a cup of coffee, a magazine, or a pack of gum. But for each transaction you can be charged as much as 35 dollars a pop.

Banks are raking in more than 31 billion dollars a year in overdraft fees.

Protecting you from what?

Sharon says overdraft protection is a sham.

“Don’t say that I’m protecting myself by signing up for the program when there’s still going to be this charge.”

Get real protection

Consumer Reports says here’s how to get some real protection.

First, decline your bank’s offer to opt in for overdraft protection. If you’re already signed up, opt out.

“You won’t be able to use your debit card if you don’t have enough money in your account. But be aware, you can still be charged overdraft fees for things like a bounced check and automatic withdrawals if there isn’t the money to cover them,” says Daugherty.

Another good idea?

"We filed alerts. We have alerts that e-mail us or they’ll text us when our account is under a certain amount that we set.”

So Sharon’s not getting hit with charges she doesn’t expect.

Consumer Reports says another move to minimize fees is to link your savings and checking accounts so you’ll have that much more money to draw upon when your balance gets low. You might get charged a transfer fee, but those are generally much lower than overdraft fees.