Needless to say, in the years since then, learning to balance my checkbook and save financial reserves has saved me untold amounts of money. If you want to do the same, it’s important to understand why overdraft protection exists and how it works.

And that’s never been more important than today, because the way banks handle overdraft protection features (and the accompanying fees) is changing.

Overdraft Protection 101

In the days before debit cards, if you wanted money from your checking account you either went down to the bank and got cash or you wrote a check. Obviously, if you didn’t have money in your account, the bank teller wouldn’t give you money. Similarly, if you wrote a check and didn’t have money in your account, the check would bounce. Not only would your bank charge you a fee, but the merchant to whom you wrote the check would also charge you a fee.

Enter overdraft protection: Banks realized that bouncing a check wasn’t just costly for customers, it was also embarrassing and inconvenient. So banks began offering overdraft protection, often automatically. With overdraft protection, if you write a check that you don’t have the money for, your bank will still clear it (up to a certain amount) and make your checking account balance negative. Then they will charge you an overdraft fee typically between $30 and $40. The bank still gets their fee, but the customer is spared the embarrassment of bouncing a check. Not many people complained.

But when debit cards came along, overdraft fees became a problem. All of a sudden we’re using our debit cards several times a day and for practically everything from monthly bills to $2.13 cups of coffee. That makes it infinitely harder to keep track of our checking account balance (assuming we balance it at all). So if you’re running low of funds on the day before payday and use your checking account to pay a bill and for two debit card transactions, you could face not just one but three overdraft fees.

How is that possible? Many banks clear larger dollar-amount transactions first. So if you had $99 in your account and paid a $100 bill and then bought a $15 lunch and a $2 cup of coffee, the bank would deduct the $100 bill from your account first, leaving you with a balance of -$1, charge you a $35 fee, then process your $15 lunch, charge another $35 fee, and finally deduct your $2 cup of coffee and charge you one more $35 fee. Ultimately overdrawing your account by $18 could cost you $105.

How Overdraft Protection is Changing

Bank of America made a splash this week when it announced that beginning this summer, the bank will no longer charge customers $35 overdraft fees on debit card transactions. Going forward, if you don’t have enough money in your checking account and you try to make a debit card purchase, Bank of America will decline the transaction. That’s probably how it should be: no money, no latte.

And change isn’t just happening at Bank of America. New federal regulations taking effect July 1 will require that banks only charge debit-card overdraft fees to consumers who opt-in for the feature. So if you’re a Bank of America customer, you won’t be able to overdraw your account via debit card unless you’re at an ATM, in which case the machine will ask you if you want to overdraw and pay a fee. But if you bank elsewhere, you get to choose whether you want to be able to spend more than you have in your account by debit card and pay overdraft fees or if you just want your transaction to be declined.

But overdrafts aren’t disappearing altogether. Banks can still charge overdraft fees on checks and recurring electronic debits without customers’ consent. (Translation: You still need to track your spending and balance your checking account!) On the flip side, however, you can still use overdraft protection in a pinch if you’ll face stiffer penalties for not paying a certain bill on time. (Ideally, of course, you should budget and save enough money so that you’re not scraping the bottom of your checking account).

Avoiding Overdraft Fees

If you’re a good customer and you ask nicely, banks may forgive your first one or two overdrafts and refund the fee. Larger banks even have specific formulas for deciding when to excuse certain fees. But don’t count on getting a freebie. In most cases, overdrawing an account is your fault and the fee is the penalty. The goal is not to do it in the first place and, if you do it once, try not to make a habit of it.
Automatic electronic funds transfers from your checking account can be another source of overdrafts. If you’re currently paying monthly bills via automatic debit, consider setting up a bill-pay account to automatically move the money from your checking account to the biller instead of the other way around (most banks won’t make a bill-pay transfer if you don’t have the cash but will allow an auto debit to go through). Check with your financial institution just to be sure.

Lastly, if you frequently overspend, do not opt-in for overdraft protection on your debit card this summer. Get a better handle on your budget and save up an extra few hundred dollars to cushion those weeks in which your checking account is running low.

Learning to avoid overdraft fees can save you hundreds of dollars a year and can even make your finances healthier in other ways too. The new regulations this summer will help, but only your commitment to budgeting and moving away from living paycheck-to-paycheck can guarantee an escape from the overdraft trap.

Related posts:

1. Cruel Overdraft Traps
2. Avoid Bank Fees
3. Debit Card Dangers

Have you ever heard the old advice: “If you can’t do something about it, don’t worry about? If you can do something about it, then do it.” This holds true for identity theft. There’s always a chance criminals can get their hands on your credit card numbers or, worse, your Social Security number, and run up fraudulent charges or debts in your name. It’s not worth losing sleep over as long as you’re taking a few simple steps to make scam artists’ jobs harder.

Identity Theft Prevention

Although about 9 million people fall victim to identity theft every year, the reality is that if you’re careful, the chances an ID thief will specifically target you and find your social security and bank account number are slim. The chances you’ll screw up and broadcast your personal information to the world, however, are higher. Take these simple steps to reduce the chance you’ll be a victim.

Only Give Out Sensitive Information When Absolutely Necessary

The majority of online identity theft occurs from phishing attempts, when consumers click a link in an email and then provide their personal information to a Website that appears to be their financial institution but actually belongs to a hacker. No legitimate bank will ever ask you to confirm account information online—especially in an email. If you receive an email and want to visit your bank—type your bank’s name into Google rather than clicking the link. Read more about how to spot and avoid phishing scams.

Of course, there are times you need to give out financial information and even your Social Security number. Just make sure that anytime you do, you trust the person you’re giving it to. If you’re online, make sure the Website where you’ll provide your info starts with “https://”. That “s” means the page is secure.

Guard Your Social Security Number

Your Social Security number is the key to your credit profile and your financial identity. Once somebody has it, they don’t need much else to take out a loan or credit card in your name. Make sure that you shred any documents that contain your social security number—and never give it out except for financial or employment purposes.

When filing out a paper form, ask if writing down your Social Security number is essential. Since many forms are immediately inputted into computers anyway, maybe you can simply dictate your number for them to enter and not leave a paper trail. Finally, some schools and medical facilities still use your Social Security number as your account number. Always ask if you can substitute another number instead.

Finally, do not routinely carry your Social Security card or any other card that contains this number in your wallet—lock them up at home.

Use Multiple Passwords

Though having one password for all of your online accounts is convenient, it’s a big security risk. Use at least a handful of passwords for your different bank and credit card accounts so if somebody somehow gets into one, the others are protected. See the comments on Seven Signs You’re At-Risk for Identity Theft for some ways to easily store and remember multiple passwords.

Report Lost Documents or Credit Cards Immediately

The second you notice you’ve lost a credit card, your driver’s license, or other important documents, report them lost or stolen. The hassle of getting new documents is far better than the hassle of fighting fraudulent charges or repairing your falsely damaged credit.

Keep a Close Eye On Your Credit Report

If an identity thief opens a bogus loan or credit card in your name, there are only two ways to find out: Check your own credit score, or wait for a bill collector to come calling to collect a debt that isn’t yours—but is in your name. You do not want to find out you’ve been a victim of identity theft this way! By then, your credit is already ruined and you will have a long, long battle to convince collectors the debt isn’t yours and to clear your name. Some victims never do.

That’s why checking your credit report regularly is so important: You can catch fraudulent accounts before they ruin your credit. You’re entitled to check each of your three credit bureau reports completely free, once a year, at annualcreditreport.com. Other services with free trials provide alternative ways to access your credit reports and scores.

Still Worried?

Identity theft protection services cost about $10, but they insure you against the unlikely but potentially crippling effects of identity theft. If you have assets and a sound credit score to protect, compare identity theft protection services and consider enrolling today.

This article is the last in a series of four posts on ways you can protect your identity and financial information. For more on protecting yourself from identity theft, check out ProtectYourIDNow.org, a non-profit Website featuring lots of useful resources.

• Tuesday: Seven Signs You’re At-Risk for Identity Theft
• Wednesday: Beware Credit Card Skimmers and How to Spot Them
• Thursday: Beware Phishing Attempts and How to Spot Them
• Today: Identity Theft: What You Need to Know to Protect Yourself

Related posts:

1. Seven Signs You’re At-Risk for Identity Theft
2. Identity Theft Growing in Recession: Protect Yourself
3. Beware Phishing Attempts and How to Avoid Them

In a routine update of our customer records, we couldn’t confirm your information. Please click here to verify your customer information.

If you receive such an e-mail, watch out! It’s definitely not from a bank. It’s fraud called “phishing”.

What’s Phishing?

Phishing is when con artists send spam messages that attempt to get you to hand over sensitive personal information like bank accounts, credit card numbers, your Social Security number, or bank Website passwords.

According to the Federal Trade Commission (FTC), “phishers send an e-mail or pop-up message that claims to be from a business or organization that you may deal with — for example, an Internet service provider (ISP), bank, online payment service, or even a government agency. The message may ask you to “update,” “validate,” or “confirm” your account information. Some phishing e-mails threaten a dire consequence if you don’t respond. The messages direct you to a website that looks just like a legitimate organization’s site. But it isn’t…”

Phishers have gotten extremely good at creating e-mails accounts and Websites that look deceivingly like they belong to a legitimate financial institution. Often, the Website names may only be a letter or two different than the actual banks’ URL. Do not be fooled!

How to Avoid Becoming a Victim

To ensure you don’t become a victim of a phishing attempt, follow these rules.

1. Don’t provide personal information. Never, ever, provide sensitive financial information in response to an e-mail or phone call. Your financial institutions will never ask for account numbers or passwords when they contact you.

2. Use anti-virus and anti-spy ware software and a firewall, and keep them up-to-date. If malicious software finds its way to your computer, phishers can create pop-up windows when you are trying to visit your actual bank. These windows will look like the bank’s Website but will actually feed your account information to the scammers. Advanced spy ware can even steal your bank account login without you even knowing it and automatically take money out of your account!

3. Review bank account and credit card statements regularly. Report any suspicious or unauthorized charges to your financial institution immediately. The sooner you catch fraud, the less damage the scammer can do and the faster you’ll get your money back.

4. If you’ve been the victim of a phishing attack, file a complaint. You can do this at ftc.gov, and then visit the FTC’s Identity Theft Website. Follow the FTC’s information for obtaining a free copy of your credit report to check for any signs of identity theft. Optionally, you can also try identity theft protection services.

Note: Next week, the National Foundation for Credit Counseling and the Council of Better Business Bureaus will promote “National Protect Your Identity Week”. This article is the second in a series of four posts on ways you can protect your identity and financial information. For more on protecting yourself from identity theft, check out ProtectYourIDNow.org, a non-profit Website featuring lots of useful resources.

• Tuesday: Seven Signs You’re At-Risk for Identity Theft
• Wednesday: Beware Credit Card Skimmers and How to Spot Them
• Today: Beware Phishing Attempts and How to Spot Them
• Friday: Everything You Need to Know About Protecting Your Identity

Related posts:

1. Seven Signs You’re At-Risk for Identity Theft
2. Identity Theft: What You Need to Know to Protect Yourself
3. Identity Theft Growing in Recession: Protect Yourself

How Skimmers Work

There are two big ways criminals use credit card skimmers to steal your information:

• They stealthfully install a skimmer on an ATM or self-serve kiosk and capture your card information when you swipe your card at the kiosk. Sometimes the machine still works, and you never know anything is wrong. Sometimes the skimmer disables the machine, but you’ll just assume it’s out of order and move on.
• Or, they get a hold of your credit card and skim your card manually (an easy racket for an unscrupulous waiter who could do this when you hand over your card to pay the bill).

Unless you catch your server in the act of swiping your card against his or her body (they often keep skimmers hidden under clothing), you probably won’t know your card has been compromised this way until fraudulent charges appear on your statement. Fortunately, however, practicing a little vigilance can help you spot and avoid skimmers that are installed on self-service kiosks and ATMs.

How to Spot Skimmers

Credit card skimmers look just like the machines that merchants and ATMs use to legitimately swipe our plastic. Skimmers can come in all shapes and sizes. Some are so professional looking you might not be able to tell them apart from a real credit card machine; others (like the one my brother spotted) are sketchtastically homemade.

At ATMs or self-serve kiosks, high-quality skimmers may be attached on the outside of the legitimate card slot (so you put your card through both without realizing it). Lower-grade skimmers are attached in a location that’s not the actual credit card slot and just rely on you to notice the skimmer first and swipe your card through it. (Or the thieves may have disabled or covered up the legitimate card slot).

One final note: thieves that install skimmers on ATMs may also install a tiny camera that will attempt to record your PIN as you enter it. So it’s a good habit to always cover the keypad with your free hand as you punch in your numbers.

Where Can Skimmers Be Found?

• Automated teller machines (ATMs)
• Gas pumps
• Public transit ticket machines
• Movie theater ticket kiosks
• Red Box DVD rental machines

What To Do If You Find A Skimmer

If you suspect you’ve found a skimmer, call local police at once and notify the owners of the machine. If you fear you’ve used a skimmer, call your bank or credit card company and let them know. You and your bank can decide to cancel your card and replace it or simply keep an eye on your statement for any fraudulent activity.

Have you ever come across a skimmer? Have you had credit card details stolen from a skimmer? Please share your story!

Note: Next week, the National Foundation for Credit Counseling and the Council of Better Business Bureaus will promote “National Protect Your Identity Week”. This article is the second in a series of four posts on ways you can protect your identity and financial information.

• Tuesday: Seven Signs You’re At-Risk for Identity Theft
• Today: Beware Credit Card Skimmers and How to Spot Them
• Thursday: Beware Phishing Attempts and How to Spot Them
• Friday: Everything You Need to Know About Protecting Your Identity

Related posts:

1. Beware Phishing Attempts and How to Avoid Them
2. Seven Signs You’re At-Risk for Identity Theft
3. Identity Theft: What You Need to Know to Protect Yourself

The CARD Act’s Under-21 Restrictions

The CARD Act stipulates that creditors are prohibited from extending credit to consumers individuals (I hate the word consumer) unless:

• the consumer individual has submitted a written application that meets specified requirements and
• the application is signed by a cosigner, including the parent, legal guardian, spouse, or any other individual who has attained the age of 21 having a means to repay debts incurred by the consumer borrower in connection with the account.

What I Think

When I first heard about the under 21 provision in the CARD Act, I said “that’s a great idea”. That’s because I started getting into hot water with credit cards way before my 21st birthday. But as I’ve had some time to chew on the idea, I’m starting to think it stinks.

First of all, I’m not a big fan of the government telling citizens what we can and can’t do.

Secondly, the provision may actually be discriminatory under the Equal Credit Opportunity Act, which is in place to

“…promote the availability of credit to all creditworthy applicants without regard to race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract)”.

(I’ll leave that debate for the lawyers).

Most importantly, I do not believe age is the best predictor of responsibility. Some people can manage credit responsibly, others can’t. Some people are in a position to get credit at 18, 19, or 20. Others are not.

I don’t believe, for example, that a full-time college student with little or no personal income should have several credit cards with $28,000 of available credit (which I had at 19). But how can the government tell a 19-year old who works full-time, has his or her own apartment, and may even be getting married, that he or she can’t get a credit card?

Creditors should make decisions on issuing credit based upon

• a borrower’s prior credit history and
• his or her means to repay the debt.

The first criterion already makes it hard enough for young people to get credit (See: No Credit History? An Uphill Climb to Auto, Home Financing), why not leave it at that? Meanwhile, credit card companies do not even verify applicants’ income. Why not simply require that they do?

I know first hand that credit cards and college is a dangerous situation, but I really hate the idea of taking away other Americans’ ability to make free choices—regardless of age.

If you’re under 21, you still have time to apply for a credit card on your own before the CARD Act goes into affect. If you do, just be honest with yourself about why you’re getting it. If you’re going to use it responsibly to build credit, great. If you have dreams of financing a trip to Cancun and paying it off after you graduate, take the advice of somebody who made that mistake not so long ago: Don’t.

What do you think? Are the restrictions on issuing credit cards to people under 21 a good idea? More importantly, are they fair? Are they legal?

Related posts:

1. Reasons to Apply for a Business Credit Card as an Individual Consumer
2. A Country Without Credit
3. Q&A: What kind of credit score do I need to get approved for a balance transfer credit card?

In fact, debit cards have created so much controversy recently, on Tuesday two of the nation’s largest banks—JPMorgan Chase and Bank of America—announced plans to eliminate and lower fees and provide new ways for customers to opt-out of overdraft protection. The banks’ plans will make it harder for debit card users to overdraw their checking accounts when making debit card purchases and reduce fees for those overdrafts that are currently between $25 and $40 a pop. Still, there are a number of debit card dangers you need to watch out for.

The Drawbacks to Debit Cards

1. Fraud Protection

If your wallet falls into the wrong hands, your debit card’s fraud protection isn’t as strong as a credit card’s. With a credit card, your liability for fraudulent charges typically maxes out around $50. With a debit card, you may be responsible for up to $500 of charges you didn’t make. Plus, some banks will hold you 100% liable if your debit card is used fraudulently for pin-based transactions. Finally, if a thief uses your credit card, you can withhold payment for the charges until your credit card investigates the suspected fraud. If a thief uses your debit card, however, they can drain your bank account in a matter of minutes, and you won’t get that money back until your bank investigates. So keep track of your debit card and if you lose it—report it at once!

2. Building Credit

If you don’t have a credit history yet or you are trying to rebuild your credit score, a debit card won’t help. On the flip side, if you frequently forget to make credit card payments, sticking with a debit card may prevent you from doing further damage to an already lackluster credit report.

3. Merchant Disputes

Let’s say you go to a fast-food restaurant and buy lunch with your debit card for $6.59. Problem is, the cashier is stoned and rings your card through for $6,590! You decline a receipt, so you never notice the mistake until you use your debit card again and it’s declined. You get home to check with your bank and see the problem. Obviously, the merchant will probably return your money (hopefully with a forceful apology), but returning your money to your account will take several days. In the meantime, you need to get your bank to reverse any overdraft fees. If this same thing happened with a credit card, you wouldn’t owe the card company a penny until the problem was solved.

If there is a dispute regarding a purchase you make, you are in a weaker position when you use a debit card instead of a credit card. The merchant already has your money when you pay with a debit card. So while the dispute is taking place, your money will remain with the merchant and you will only see that money again if you win the dispute.

4. Fees!

If you use a debit card for most of your purchases, you need to be extremely diligent about keeping track of your account balance. If you overcharge by a few dollars (or even a few hundred), your card may not be declined. The bank may allow your charge to go through, and then hit you for one or more overdraft fees of up to $34 a piece. These fees will quickly add up to more than a credit card would charge in interest if you revolved a small balance from one month to the next.

Hopefully many banks will follow Chase and Bank of America’s lead and reduce these fees and or give people the option of opting out of overdraft protection (so if you don’t have enough money in your account to make a purchase, your debit card will simply be declined). Embarrassing, yes, but far less costly.

5. Rewards and Services

Many credit cards offer cash-back or other rewards programs, as well as services like warranties on big purchases and rental car insurance. Until recently, debit cards did not, although debit cards with these perks are starting to appear. I put this “debit card danger” last because I think it’s the least compelling reason to choose credit cards over debit cards. For most of us, the rewards we earn on our annual card purchases might add up to $100. If we carry a balance on a credit card, however, finance charges quickly eat up any rewards we might receive.

The Smart Way to Use a Debit Card

Knowing these debit card dangers, you may still decide that avoiding credit cards altogether is the way to go. In that case, follow these simple rules to use your debit card securely.

• Treat your debit card like cash—always keep it secure—and if lost or stolen, report it immediately.
• Never, ever, write down or share your PIN
• Keep a cushion in your checking account of between $500 and $1,000
• Keep extra funds in a savings account—not the checking account linked to your card
• Keep a checkbook register, on paper or electronically, so you always know how much money you have

Do you use your debit card as your exclusive payment card or are you sticking with credit cards? Let us know your thoughts in a comment.

Related posts:

1. Understanding Overdraft Protection and Fees
2. Cruel Overdraft Traps
3. Yes, Virginia, There is a Rewards Debit Card

How the Rebate Works

After purchasing a qualifying phone from AT&T Wireless, the customer receives paperwork to apply for a rebate in the form of a Visa debit gift card. As with most rebates, the customer must complete a form and mail it in along with the receipt and the applicable codes from the new phone’s packaging. Then, the customer waits. And waits.

My wife and I both purchased new phones from AT&T within the last year, and we both waited about six weeks to receive our $100 rebate gift cards. That’s not unusual for mail-in rebates, and the waiting period is fully explained in AT&T promotional materials. The problem with this rebate offer, however, isn’t the wait. It’s the form of the rebate: The Visa debit gift card.

Unlike a cash rebate (that comes as a check for the rebate amount), the AT&T rebate comes on a preloaded Visa gift card. The card can be used anywhere that accepts Visa. Almost as good as cash, right? Not quite.

My Wife’s Experience

My wife decided to use her AT&T Visa rebate card last weekend to make a couple of purchases. She actived the card and went off to the mall. She made her first purchase for $41 without trouble. The problems, however, started when she tried to use the card to make a second purchase.

Her second purchase was going to be about $100—more than the remaining value ($59) on the gift card. She carefully explained to the clerk that she’d like to charge the AT&T rebate card for exactly the remaining balance, and pay the balance on the item with another card. “No problem,” the clerk said as she ran the gift card through for the exact amount of the remaining balance.

To my wife’s surprise, the card was declined. The clerk tried again. Declined.

My wife called the number on the back of the AT&T rebate Visa card from the store. That’s when things got interesting. The woman who answered the phone told her that when she used the gift card the first time, the company put a hold on the card for the amount my wife charged plus twenty percent (to allow for a potential tip). Of course, my wife used the card in a clothing store, not a restaurant, but the card must do this for all transactions. That hold stays on the card for a few business days.

Not only did that hold prohibit my wife from using the full value of the card, but since she had attempted a purchase the caused the card to be declined, the woman told her that the card’s value would now be “frozen” for ten days! There would be no way to use the card for any reason until the freeze expires after ten days. Talking to the company and explaining the situation did nothing.

Obviously, AT&T/Visa puts these restrictions on these gift cards to prevent a cardholder from overcharging the card’s value. Because the card is not reloadable and not a credit card, Visa would have no way to recover any charges that exceed the gift card’s initial value.

Unfortunately, the restrictions also make it very difficult for the consumer to use the card for its full value. My guess? That’s what AT&T is counting on. By issuing gift cards instead of cash, they know that some people may forget about the card altogether, others won’t use it before it expires (it’s only valid for a few months), and most others will only use a fraction of the balance. Instead of paying out rebates of $100 per phone, AT&T probably pays back, on average, a much lower amount.

One final frustration: You can’t use the rebate Visa cards to pay your AT&T Wireless bill.

Buyer Beware!

So if you buy an AT&T Wireless phone and receive a Visa rebate gift card, beware! There may be no way to use the full value of the card. If somebody knows how, please share!

If you wish to voice complaints to AT&T Wireless regarding these Visa rebate cards, call one of their executive customer service numbers (attached to their corporate offices). Phone numbers courtesy of Consumerist, where you can find these number for all the big wireless carriers.

AT&T Executive Customer Service

• Eastern States: 877-707-6220
• Western States: 800-498-1912

Of course, you can also feel free to share your story and/or complaints about these rebate cards here in a comment.

Related posts:

1. How to Trade In Your Car With Cash for Clunkers
2. Will You Get Your Economic Stimulus Tax Rebate Check?
3. Creative Yankee Swap Gift Ideas