Is there a name for the halo effect of words? There should be because one example of this is "Overdraft Protection".
EDIT: I am specifically referring to Debit Card Overdraft protection service
EDIT 2: I have been made aware that I am using the wrong term, overdraft service is the term most commonly used by major banks to refer to the “service” they offer on debit card overdrafts. If you see me refer to something as Overdraft Protection please assume I am referring to the service banks give you on debit card use
If you are from the States I am willing to bet that you have opened a bank account at some point in your life and was presented with the option to have Overdraft Protection. Say No. For most people saying no is the right answer. I think many people when asked about this on the spot don’t have enough time to think through what Overdraft Protection really is. Just because someone decided to name something “Protection” doesn’t mean it protects you from anything. It might even feel silly to opt-out of something that is offered for “free”, which is why I think a lot of people fall for this poor decision. Let me explain why you should opt-out.
If you pay for something that you do not have the funds to pay for, the bank will lend you the money or help you transfer the money from a linked account to cover your purchase. They charge anywhere from $12 to $34 dollars or more for this service. Chase is a major bank and they charge $34. If for example you forgot to deposit your paycheck and bought a $3 latte with only $1 in your checking account, Chase will “protect” you from having the purchase be declined for a fee of $34.
If you knew that you didn’t have enough money would you agree to pay $34 for chase to loan you the money? The answer is no. You would rather have your purchase be declined. There is no fee to being declined a purchase. In fact the real protection is to be declined the purchase and not borrow money at insane amounts of interest.
These fees stack per transaction. Most people are hit with fees because they were not aware they were lacking the funds, this means that usually multiple transactions are made the same day thinking everything is OK. So if you buy a latte for breakfast, lunch and dinner, Chase will charge you $102 …because you know, they are protection you from the embarrassment of being declined. Lucky you.
Too many people have Overdraft protection when they don’t need it and the problem isn’t that most people are to stupid to do simple math, it’s because they never really thought about the implications. They were rushed into agreeing to something with out thinking about it. Well, now you have thought about it, so you don’t have an excuse. If you don’t need overdraft protection, go and opt-out now. Please avoid the trap of thinking that you don’t ever overdraft so it doesn’t matter, that is a bad decision. Even if it were true that you rarely overdraft, why would you deliberately keep a potential landmine of fees under your feet?
When is overdraft protection appropriate? Very rarely it can come in handy when writing important checks for a mortgage or loan other than that, most people do not use checks to pay bills any more. I used to be a poor university student and as such we are the prime targets of these bank scams, so get smart and get rid of it today.
I bank with Chase, and unless the written information I’ve received from them is a straight-up lie (which would put them at risk for a lawsuit...) this information is factually inaccurate. What you describe as “overdraft protection” is actually the policies you’ll be subjected to without overdraft protection. Overdraft protection does come with fees, but they’re much less, no more than $10 a day.
(The moral of the story: don’t be overdrawn. It will cost you money in fees with or without overdraft protection.)
The confusion stems from the fact that there are two different services for Chase, one for check writing and one for debit cards. I am specifically talking about debit card usage and will edit my post to make it more clear.
Chase will charge you $10 per day for check writing overdraft protection on accounts that are linked, this is true. However for debit card use, you would be charge $0 if you opt-out and indeed pay $34 per transaction if you opt-in. The problem is that many banks combine checking and debit card usage in to one plan, and others like Chase split it up. My main point is that check writing is becoming very rare, and most people get dinged from fees using their debit cards. So if they are combined and you really don’t write checks, then you definitely should opt-out.
There is $34 fee for debit card overdraft protection and $0 fee for opting out(here and here). Does this resolve your disagreement?
(The moral of the story: don’t be overdrawn. It will cost you money in fees with or without overdraft protection.)
If you opt-out of debit card overdraft protection it will not cost you any money! If you opt-in for debit card overdraft protection it will cost you money. I know it sounds ridiculous, because it is.
Based on the links, Chase doens’t even call their service for debit cards “overdraft protection,” so this doesn’t support the original point about words misleading people. Also, it seems that if you have debit card coverage and overdraft protection, you’ll at most be changed $10/day for overdrawing with your debit card. Still better to use a credit card when you don’t have money in your checking account, obviously.
(Also, as Louie Helm recently pointed out, as long as you pay your balance in full every month, you’re better off using your credit card for everything because the rewards program will reduce the cost of everything you buy by 1% or more.)
Chase doens’t even call their service for debit cards “overdraft protection,” so this doesn’t support the original point about words misleading people
In the spirit of being helpful and trying to be as factually accurate as possible, I have edited my original post, as you are absolutely are correct about the terminology. I would only argue that I consider my original point to be merely a segway to introduce my main argument that debit card overdraft services are typically poor decisions.
Also, it seems that if you have debit card coverage and overdraft protection, you’ll at most be changed $10/day for overdrawing with your debit card.
I do not believe this is accurate.
However assume it is accurate, if you weigh the cost/benefit (again talking about debit card use) it IMO is still a terrible investment. My bank happens to be Wells Fargo and they charge $12, for debit OD service, better, but still pretty bad. But ultimately you must decide what is an acceptable fee. The vast majority of people getting dinged for debit card overdrafts, are not buying life saving medication, its more likely to be a cup of coffee or a hot dog. So if you asked them what they would have done if they knew they had insufficient funds, they would likely reject the $10 or $34 fee. This isn’t even considering that most banks are not obligated to tell you that you are overdrawn, so you could get dinged $10 a day until you finally realize it, as opposed to being notified right away from being declined. BTW since you’re a Chase customer Chase happens to waive the fee if you can fund your account by day end, but they aren’t obligated to inform you that you are negative.
you’re better off using your credit card
You’re better off using your credit card and saying no to debit card overdraft service – for the most part. Unless you frequently find yourself in the position of having your purchases must go though for what ever reason.
Oh wheee, this is what I worked on in DC. There are a few different things that can happen when you try to make a purchase on a debit card with insufficient funds:
the merchant sees you don’t have the money, the card is declined, and you pay the bank nothing
the bank transfers money from a linked account (usually a savings account or line of credit) and charges a fee for this service (median $10, at least back in 2012)
the bank covers the cost of the purchase, which you now need to pay back, along with a fee of (at median) $35
The law changed recently (in the last 5 years) so that banks have to ask you to opt-in to overdraft. If you take no action, when you try to buy something with your debit card you don’t have the money to cover, you just can’t do it, and you incur no fee. So, banks have done a big push to get people to opt-in, including using the “Overdraft Protection” language, but, for most people, it’s a bad choice.
And, fun fact, some banks reorder your purchases, when they’re processed, in order to maximize the number of overdrafts you incur. (i.e. if you had $20 in you account and bought, in order, items costing $5, $5, $5, $20, some banks reorder your purchases high-to-low so they can charge three overdraft fees instead of one). You can see a graphic with data from a real world case here.
Fun Fact, if you overdraw and are protected by a bank transfer from a linked account but that linked account is also insufficient, you get charged both fees – one fee for the transfer, and another for not having enough after the transfer! How can they justify this? Easy, the fee for just a transfer, not guaranteeing you that your transfer will be adequate.
Last month I signed up for a bank account at my local credit union, and they do offer overdraft protection of various sorts. One of the things that impressed me was that the woman who was setting up my account explained to me why I did not want overdraft protection, using a very similar example.
I cannot speak for all Banks policies, but that isn’t how the ‘overdraft protection’ on my account works. How mine (actually a credit union, maybe thats a difference) works is:
Without it, if I was to write a check with insufficient funds, I would get charged some large fee.
But with the Overdraft Protection, it will transfer money from my savings account to checking to cover it, for free, helping me avoid the fee. Essentially it lets me use the savings accounts as a safety net to avoid the charges.
This ‘protection’ has in fact saved me in a couple of instances.
UK banks lost a test case a few years ago that led to a lot of people getting back however many years of overdraft charges, plus interest. The same thing happened a bit later with “payment protection insurance”, intended to cover loan repayments if you lost your job, but with so many exclusions as to be almost worthless.
The end result was something like a forced savings policy. Cue people who avoided the initial trap wondering where their free money is.
Is there a name for the halo effect of words? There should be because one example of this is"Overdraft Protection".EDIT: I am specifically referring to Debit Card Overdraft
protectionserviceEDIT 2: I have been made aware that I am using the wrong term, overdraft service is the term most commonly used by major banks to refer to the “service” they offer on debit card overdrafts. If you see me refer to something as Overdraft Protection please assume I am referring to the service banks give you on debit card use
If you are from the States I am willing to bet that you have opened a bank account at some point in your life and was presented with the option to have Overdraft Protection. Say No. For most people saying no is the right answer. I think many people when asked about this on the spot don’t have enough time to think through what Overdraft Protection really is. Just because someone decided to name something “Protection” doesn’t mean it protects you from anything. It might even feel silly to opt-out of something that is offered for “free”, which is why I think a lot of people fall for this poor decision. Let me explain why you should opt-out.
If you pay for something that you do not have the funds to pay for, the bank will lend you the money or help you transfer the money from a linked account to cover your purchase. They charge anywhere from $12 to $34 dollars or more for this service. Chase is a major bank and they charge $34. If for example you forgot to deposit your paycheck and bought a $3 latte with only $1 in your checking account, Chase will “protect” you from having the purchase be declined for a fee of $34.
If you knew that you didn’t have enough money would you agree to pay $34 for chase to loan you the money? The answer is no. You would rather have your purchase be declined. There is no fee to being declined a purchase. In fact the real protection is to be declined the purchase and not borrow money at insane amounts of interest.
These fees stack per transaction. Most people are hit with fees because they were not aware they were lacking the funds, this means that usually multiple transactions are made the same day thinking everything is OK. So if you buy a latte for breakfast, lunch and dinner, Chase will charge you $102 …because you know, they are protection you from the embarrassment of being declined. Lucky you.
Too many people have Overdraft protection when they don’t need it and the problem isn’t that most people are to stupid to do simple math, it’s because they never really thought about the implications. They were rushed into agreeing to something with out thinking about it. Well, now you have thought about it, so you don’t have an excuse. If you don’t need overdraft protection, go and opt-out now. Please avoid the trap of thinking that you don’t ever overdraft so it doesn’t matter, that is a bad decision. Even if it were true that you rarely overdraft, why would you deliberately keep a potential landmine of fees under your feet?
When is overdraft protection appropriate? Very rarely it can come in handy when writing important checks for a mortgage or loan other than that, most people do not use checks to pay bills any more. I used to be a poor university student and as such we are the prime targets of these bank scams, so get smart and get rid of it today.
I bank with Chase, and unless the written information I’ve received from them is a straight-up lie (which would put them at risk for a lawsuit...) this information is factually inaccurate. What you describe as “overdraft protection” is actually the policies you’ll be subjected to without overdraft protection. Overdraft protection does come with fees, but they’re much less, no more than $10 a day.
(The moral of the story: don’t be overdrawn. It will cost you money in fees with or without overdraft protection.)
The confusion stems from the fact that there are two different services for Chase, one for check writing and one for debit cards. I am specifically talking about debit card usage and will edit my post to make it more clear.
Chase will charge you $10 per day for check writing overdraft protection on accounts that are linked, this is true. However for debit card use, you would be charge $0 if you opt-out and indeed pay $34 per transaction if you opt-in. The problem is that many banks combine checking and debit card usage in to one plan, and others like Chase split it up. My main point is that check writing is becoming very rare, and most people get dinged from fees using their debit cards. So if they are combined and you really don’t write checks, then you definitely should opt-out.
There is $34 fee for debit card overdraft protection and $0 fee for opting out(here and here). Does this resolve your disagreement?
If you opt-out of debit card overdraft protection it will not cost you any money! If you opt-in for debit card overdraft protection it will cost you money. I know it sounds ridiculous, because it is.
Based on the links, Chase doens’t even call their service for debit cards “overdraft protection,” so this doesn’t support the original point about words misleading people. Also, it seems that if you have debit card coverage and overdraft protection, you’ll at most be changed $10/day for overdrawing with your debit card. Still better to use a credit card when you don’t have money in your checking account, obviously.
(Also, as Louie Helm recently pointed out, as long as you pay your balance in full every month, you’re better off using your credit card for everything because the rewards program will reduce the cost of everything you buy by 1% or more.)
In the spirit of being helpful and trying to be as factually accurate as possible, I have edited my original post, as you are absolutely are correct about the terminology. I would only argue that I consider my original point to be merely a segway to introduce my main argument that debit card overdraft services are typically poor decisions.
I do not believe this is accurate.
However assume it is accurate, if you weigh the cost/benefit (again talking about debit card use) it IMO is still a terrible investment. My bank happens to be Wells Fargo and they charge $12, for debit OD service, better, but still pretty bad. But ultimately you must decide what is an acceptable fee. The vast majority of people getting dinged for debit card overdrafts, are not buying life saving medication, its more likely to be a cup of coffee or a hot dog. So if you asked them what they would have done if they knew they had insufficient funds, they would likely reject the $10 or $34 fee. This isn’t even considering that most banks are not obligated to tell you that you are overdrawn, so you could get dinged $10 a day until you finally realize it, as opposed to being notified right away from being declined. BTW since you’re a Chase customer Chase happens to waive the fee if you can fund your account by day end, but they aren’t obligated to inform you that you are negative.
You’re better off using your credit card and saying no to debit card overdraft service – for the most part. Unless you frequently find yourself in the position of having your purchases must go though for what ever reason.
Also, use financial institutions whose incentives are better-aligned with the interests of their depositors; notably, credit unions.
Oh wheee, this is what I worked on in DC. There are a few different things that can happen when you try to make a purchase on a debit card with insufficient funds:
the merchant sees you don’t have the money, the card is declined, and you pay the bank nothing
the bank transfers money from a linked account (usually a savings account or line of credit) and charges a fee for this service (median $10, at least back in 2012)
the bank covers the cost of the purchase, which you now need to pay back, along with a fee of (at median) $35
Both the second and third option are sometimes called Overdraft Protection. There is no industry standard term, so it can be very hard to contrast between banks and disambiguate overdrafts covered by a transfer and regular overdrafts. (You can see the 14 different terms we found across 24 banks and credit unions here).
The law changed recently (in the last 5 years) so that banks have to ask you to opt-in to overdraft. If you take no action, when you try to buy something with your debit card you don’t have the money to cover, you just can’t do it, and you incur no fee. So, banks have done a big push to get people to opt-in, including using the “Overdraft Protection” language, but, for most people, it’s a bad choice.
And, fun fact, some banks reorder your purchases, when they’re processed, in order to maximize the number of overdrafts you incur. (i.e. if you had $20 in you account and bought, in order, items costing $5, $5, $5, $20, some banks reorder your purchases high-to-low so they can charge three overdraft fees instead of one). You can see a graphic with data from a real world case here.
Fun Fact, if you overdraw and are protected by a bank transfer from a linked account but that linked account is also insufficient, you get charged both fees – one fee for the transfer, and another for not having enough after the transfer! How can they justify this? Easy, the fee for just a transfer, not guaranteeing you that your transfer will be adequate.
Last month I signed up for a bank account at my local credit union, and they do offer overdraft protection of various sorts. One of the things that impressed me was that the woman who was setting up my account explained to me why I did not want overdraft protection, using a very similar example.
I cannot speak for all Banks policies, but that isn’t how the ‘overdraft protection’ on my account works. How mine (actually a credit union, maybe thats a difference) works is:
Without it, if I was to write a check with insufficient funds, I would get charged some large fee. But with the Overdraft Protection, it will transfer money from my savings account to checking to cover it, for free, helping me avoid the fee. Essentially it lets me use the savings accounts as a safety net to avoid the charges.
This ‘protection’ has in fact saved me in a couple of instances.
UK banks lost a test case a few years ago that led to a lot of people getting back however many years of overdraft charges, plus interest. The same thing happened a bit later with “payment protection insurance”, intended to cover loan repayments if you lost your job, but with so many exclusions as to be almost worthless.
The end result was something like a forced savings policy. Cue people who avoided the initial trap wondering where their free money is.
You have to wonder sometimes.