Debit Card Overdraft Coverage

[TonyDown]

I declined debit card overdraft coverage on my new checking account.  The bank would charge a set fee for an overdraft, where they would cover payment.  Otherwise, no other fees are charged.

The bank followed up to confirm I still want to decline.  I get the sense they must earn a lot of revenue from this service.

Now I am questioning my decision.  

Do people lose spending discipline with this coverage?

Do you have this coverage?   

Would you recommend approving debit card coverage?

Edited November 5 by TonyDown

[KeepItReal]

You only need overdraft coverage if you plan to, or frequently go into, overdraft. Then you will be charged a fee. Some banks charge for every transaction that pushes you deeper into overdraft.

 

If you budget and don't go into overdraft you don't need it. 

[TonyDown]

I was surprised to hear my sister in law relies on it.  Seems illogical.

 

 

Edited November 5 by TonyDown

[Beancounter]

I have overdraft protection for my checking account but funds to cover the overdraft are automatically transferred from my savings account to cover the overdraft protection.  No charge for that service.  Had I not structured my accounts that way the bank would have imposed a $35 fee for each overdraft.  In the many years I’ve had my checking account I’ve never had to use that feature.

 

On a related note, I believe banks are now required to follow a certain order in processing transactions: deposits and other credits first followed by debit transactions.  This is to insure banks couldn’t ding your account several times for overdraft fees before depositing funds.   It seems to me Congress passed this law.  Some more knowledgeable than me will know if that’s true. 

[+ JamesB]

4 hours ago, Beancounter said:

On a related note, I believe banks are now required to follow a certain order in processing transactions: deposits and other credits first followed by debit transactions.  This is to insure banks couldn’t ding your account several times for overdraft fees before depositing funds.   It seems to me Congress passed this law.

 

Under the Federal Reserve's Regulation E (Electronic Fund Transfers, part of the Electronic Fund Transfer Act of 1978), banks must disclose their posting order in account agreements. However, there is no federal mandate for a "credits first" sequence. Banks can choose methods like chronological order, low-to-high, or high-to-low, as long as they're transparent. A few states like California via the Rosenthal Fair Debt Collection Practices Act, have rules limiting unfair practices, but nothing nationwide requires credits before debits. The Consumer Financial Protection Bureau finalized a rule in late 2024 to cap most overdraft fees at $5 (effective October 1, 2025), treating them as loans with stricter disclosures. However, this was repealed by Congress in March 2025 under the Congressional Review Act. As of now, standard fees, usually $35, remain but posting order is still unregulated federally beyond disclosures.