Will new legislation protect your checking account from yourself?

Legislation designed to protect checking account customers from overdraft fees has gone into effect. Due to the new federal regulations, as of August 15, 2010 all checking account customers were required to actively "opt-in" if they wanted overdraft protection, which carries an average cost of $29.26 per overdraft occurrence.

It turns out that many checking account customers seem willing to pay that price. An online poll conducted by the National Foundation for Credit Counseling (NFCC) found that 26 percent of respondents planned to opt in to overdraft protection.

This poll suggests that a large number of Americans are willing to pay the price for overdraft protection which could mean that:

• They are willing to pay large sums of money not to reform their financial habits, or
• They rarely, if ever, overdraft their accounts, so most likely they will pay little or nothing to have the protection in place.

For people who do routinely overdraft their accounts, they would be much better off taking some simple steps to avoid those overdrafts.

Avoiding overdrafts in your checking account

Here are some less costly ways to avoid overdraft fees:

• Keep accurate records of your checking account balance, and/or use electronic tools to stay up-to-date.
• Link checking accounts to savings accounts or money market accounts, so that money will transfer automatically if you draw your checking account below a zero balance. There may be a fee for this service, but it will typically be less than the overdraft fees you'll pay for the bank to cover this.
• Keep an extra cushion in your checking account. With savings and money market rates so low, you won't be missing much interest by keeping more money in your checking account instead.