Do you need overdraft insurance?

Someone asked me whether it is necessary to buy overdraft insurance that costs $5 per month. It is a very nice recurring revenue for the bank with very high profit margins. The bank doesn’t need to do anything and just collect money.

Once, I was charged $40 insufficient fund fee because I made a mistake by withdrawing money from the wrong chequing account. It is very easy problem to fix for the customers. Why can the bank simply stop it and send me a warning message? Nowadays, I got so many alerts from my bank anyway. Of course, the bank wouldn’t. Why forgo such plum revenue?

The overdraft insurance is supposed to avoid this one-time insufficient fund charge by charging you every month. 😊 This insurance revenue is even better for the bank. The insufficient fund might never happen, but this insurance charge is guaranteed every month. Some customers might buy it and forget about it because the amount is small. That is exactly what the banks want.

I would not recommend it. You can set an alert on your bank account when it dips below certain amount. This function become more and more available.

Try to avoid any recurring charge if necessary. Just like daily coffee. No matter how small it is, it can add up quickly.

Please go through your various expenses and fees and see whether there are any small but recurring charges you can get rid off. Good luck hunting! Every penny counts.

Published by Worthfy

Financial literacy and counselling

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