Overdraft continues to be a problem even after the government rules let consumers opt-out of debit card and ATM overdraft by default.
According to a report by the Consumer Financial Protection Bureau released in June, 28% of checking accounts had at least one overdraft, and 8% of accounts had more than ten overdrafts in a year. Among the accounts that had at least one overdraft, the average overdraft fee paid was $225 in a year. That’s just crazy.
Not opting-in for debit card and ATM overdraft does not stop overdraft, because there are still checks, online bill payments scheduled ahead, and pre-authorized ACH debits that can come in by surprise. The best way to stop overdraft is not better tracking (who has time?) or a larger cushion (a luxury for many). The best way is to use an account that will not overdraft, period, by design.
Bluebird from American Express is one such account. I wrote about it when it first came out in 2012. Since then it got better by adding FDIC insurance, check-writing, and separate buckets within the account for different goals called SetAside.
You can direct deposit your paycheck, transfer from another bank account, and deposit paper checks by mobile phone to a Bluebird account. You get a debit card with access to free ATMs all over the country. You have free online billpay. You check your balance online and on mobile. Bluebird does what most people need in a checking account and more, with no minimum balance and no monthly fee.
A key difference between Bluebird and a traditional checking account is that Bluebird deducts every outgoing payment from the available balance immediately. There’s no ambiguity in how much is left to spend in your account.
The way Bluebird handles checks takes advantage of the technology. You tell them online or in the mobile app how much you are writing a check for. You get a pre-authorization code back. You put the pre-authorization code on your check.
Getting a pre-authorization code serves two purposes:
- It makes your check secure. If someone forges your check, it will not be paid because it doesn’t have a valid code.
- It sets the money aside the moment you write the check. You are guaranteed not to overdraft when the check comes in.
American Express should get a patent for this. In the pre-Internet days, you couldn’t tell the bank about the checks you wrote. In an Internet connected world, at other banks you are still supposed to track your outstanding checks with a paper register. Really?
Online bill payments in Bluebird are also taken out of your available balance immediately. You don’t have to worry about forgetting when one will hit.
ACH debits? They are blocked, not allowed. You are in complete control of the Bluebird account. Nothing comes at a surprise.
If you or a family member worry about overdraft or dipping below the minimum balance for waiving a monthly fee, consider using Bluebird. Paying overdraft fees is crazy. Asking the bank to waive the fee after it happens is a hassle. You shouldn’t have to worry about it ever happening to begin with.
Bluebird does it better with modern technology by design: it’s just not possible to overdraft or drop below a minimum balance when there is none. It’s a truly disruptive product for a day-to-day spending account. What you see in the account is what you have, at all times. You only spend what you have. It’s the way a checking account should be all along.
[Photo credit: Flickr user afagen]