More than three-quarters of all banks automatically enroll their customers in the most expensive form of overdraft protection. That’s a key finding from a new FDIC survey, as reported by MarketWatch. If you are among the 25 percent of people who spend more than is in your checking account at some point in a given year, such banks will allow the transaction to go through and then hit you with a fee averaging $27. The article suggested looking into a less expensive overdraft protection option like a linked account. Under that scenario, if you have a savings account at the same bank and overspend your checking account balance, the bank will automatically cover the shortfall by drawing on funds in your savings account. Many banks offer this type of overdraft protection for free, but you have to ask for it.
One other reason to maintain a savings account at the bank where you have a checking account is that it’s a good place for what I call near-term “When” savings. This type of savings, which I discuss in “Money, Purpose, Joy,” is for expenses that come up less often than monthly – insurance bills, property taxes, vacations, etc. I encourage people to take the annual amount of all such items, divide by 12, and then set up an automatic monthly transfer of that amount from checking to a near-term “When” savings account. When you need the money, transfer it back to checking. It’s a very effective way to make sure you have the money for such bills when they come due.