Never Worth It? Overdraft Protection, Student Loan Assistance, and Payment Accelerators

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piggybank_feesA lot of financial articles are all about optimizing or finding the “best”. The best bank account, best credit card, best mutual fund, etc. However, this article Nothing For Money takes a different perspective. They outline three “Bullsh– Financial Products” (BFPs) that are never, ever worth the money. There is no “best” to recommend. The best advice is to simply avoid them completely.

Overdraft Protection. The banks say they only want to offer “help” with this “protection”, but then why did it require governmental intervention make it opt-in only? You may be opted-in today due to old rules or by accident (you can still call them and opt-out). The fact is that most people would probably save money overall if it didn’t exist and banks simply rejected the transactions instantly.

I would really love to hear from anyone who has had a positive experience with overdraft protection. If you exist, write in and let us know about an instance when you were glad to pay your overdraft fee in order to have your transaction processed on the spot. What was the transaction? Why was it worth the extra $35 or whatever the fee amount was? Why was that better than using a credit card if you had access to one?

Student Loan Assistance. Student loans are big business and unfortunately the long list of options can be confusing. Don’t let one of these outfits take advantage of you.

So the student loan assistance companies will literally charge you many thousands of dollars to do something that: a) is not even necessarily the right thing for you; and b) is extremely easy and fast to do yourself if it is the right thing for you.

Payment Accelerators. I am also a big proponent of DIY payment acceleration. I have never found a payment accelerator program that I would recommend to a family member.

First, they generally charge you a lot. The companies that do this for your mortgage will sometimes charge you a full mortgage payment up to $1,000 to start the program, and then a fee of $5 or so every time they withdraw a payment from you, which is usually every two weeks. If you used a payment accelerator for your whole 30-year mortgage, you’d pay almost $5,000. There are also companies that do this mainly with auto loans. They charge a little less, but it’s still a lot. Most of them will charge you $399 at the beginning and then $2-3 per withdrawal, again usually every two weeks. So for a five-year loan, even if you pay it off six months early, you’re still looking at almost $700 in fees.

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  1. I’m not sure this is overdraft protection … but Washington Mutual used to link my savings account to my checking account and would move money from savings to checking to avoid an overdraft fee (all free of charge) and it was great. Wachovia used to do something kind of similar where they would link my account to a credit card and rather than overdraft it would charge the credit card. I still liked WaMu better.

    • I don’t think that’s “overdraft protection” as you technically still have the funds, but that is a good point and a great feature to look for in a bank. I actually have that with Ally Bank right now. If my checking account hits zero, it will move money automatically (and for free!) from savings in $100 increments I believe. The only warning is the bank rule that you can only make 6 withdrawals from savings per month. Ally’s savings account pays higher interest than the checking.

  2. I don’t like linking my checking and savings accounts. One time my bank called and said I overdrafted my checking and would I like to have money transferred from savings? Despite never having previously overdrawn my account, I said yes. Then I found out a fraudulent transaction when through on my PayPal account that overdrew my checking account. And I had to fight to get my checking funds back plus some of the funds that were transferred in from savings.

    Now I have a checking account with $100 in it at a completely different bank where I have no other accounts. That is the account I use for anything associated with the web, paypal, etc.

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