A different, slightly cheaper kind of overdraft protection

Let's get the obvious out of the way first: We don't want you to overdraw your checking account. Spending more money than you actually have is not ideal, to say the least, and always winds up costing you more -- sometimes much more -- in the long run.

But banks made more than $38 billion in overdraft fees alone in 2009, so it's apparent that a lot of Americans are spending more money than they have in their checking accounts.

New rules about overdraft fees kick in this coming July. As we've pointed out in other posts, though, this doesn't mean you're off the hook if you try to buy something when you account balance is at zero. Rather, you'll just get slapped with an "insufficient funds" fee, which can cost as much as that overdraft "protection" fee you thought you were avoiding.
Ideally, of course, you should just keep track of how much money is in your bank account. But when that system fails, banks are offering a new service that takes a little bit of the sting out of hitting bottom on your checking account.

This system goes by different names at different banks but is generally called something along the lines of "overdraft transfer." A few are even calling it, confusingly, "overdraft protection," although it's not the automatic enrollment in a program that'll ding you $35 if you spend more than you have.

Here's how it works: You link your checking account to a savings account at the same bank and enroll. If you make a check or debit card purchase that puts you in the red, the system kicks in and transfers money from that linked savings account into the checking account.

The downside is this: It's not free. If this bothers you, the budget-minded (albeit slightly time-consuming) fix is to check your balance every day, figure out how much you'll be using your debit card the next day, and make any necessary transfers yourself. Unfortunately, if you don't check your balance regularly, you could be draining your savings account for quite a while (and accruing $10 fees every day you make a transfer) without realizing it. As a result, we offer the usual WalletPop caveats: Check your balance frequently, and be aware of when the money for your bills gets taken out.

WalletPop contacted Bank of America, Chase (which now includes Washington Mutual), CItibank and Wells Fargo (which now includes Wachovia) to ask how their versions of this program worked. Generally, the cost for a transfer from savings to checking runs $10 a pop.

Bank of America waives that fee or only charges half if you have certain types of accounts (generally checking accounts with high minimum balances) with them and caps the cost to you at one fee per day. Wells Fargo and Chase also have a one-fee-per-day cap. BofA and Wells transfer the exact amount you're short out of your savings account, while Chase makes the transfer in multiples of $50.

Citibank handles things a little differently. If you're a Citi customer and try to buy something that costs more than you have in your account using your debit card, the card will just be declined. A spokesperson said this action won't trigger an insufficient funds fee. The overdraft transfer will kick in if you write a check for more than you have in your account. It's also $10 per transfer, but the money is pulled out of your savings account $110 at a time ($10 is for the fee; the other $100 goes into your checking account).

Now, one final word of warning: Instead of linking your checking account to a savings account, most banks will also give you the option of linking your checking account to a line of credit. Don't take it. Borrowing from yourself is one thing. Borrowing from the bank -- and paying interest on top of being charged $10 at a time to access that money -- is not a good way to manage your finances.
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