Question: Are bank charges on social security funds legal? How can these charges be avoided?

Question: Are bank charges on social security funds legal? How can these charges be avoided? 

Answer:

This is an excellent question.

Here is a link with good information on how you can protect funds from your social security payments from bank fees.

If you are concerned about a bank charging overdraft or insufficient funds fees on your social security funds here are some options to avoid this problem:

1. Have your social security funds deposited into a Direct Express card instead of a bank account.
   • Information on the Direct Express card
     • Direct Express® Debit MasterCard®
     • Direct Express enrollment
2. Be careful of any other cards. The Direct Express card is a result of a negotiation with the U.S. government. Other cards may have very high fees.
3. If you do not want to use a Direct Express card and want your social security funds deposited in a bank account you should consider the following:
   • Shop around for your bank account and make sure that you understand all of the fees the bank charges. Avoid accounts with overdraft fees. If you are offered overdraft coverage do not accept or opt for it. 
     • Common fees that you need to find out about and avoid
       • Many banks require a minimum balance or they will charge a fee
       • Do not use non-network ATM’s since they might charge fees
       • Some banks charge fees if you exceed a certain number of ATM withdrawals or balance inquiries
       • Link your savings and checking accounts since sometimes this can help you to avoid overdraft fees.
       • Opt out of overdraft coverage and do not use banks that have overdraft fees
   • Consider using a credit union. These tend to have lower fees and lower minimum required balances. Click here to find a credit union in your area.
   • Keep no more than two months of benefits in your account. Banks are not allowed to charge fees on two months worth of “protected funds” such as social security payments. The law requires banks to check to see if an account has “protected funds”. You must keep the “protected funds” in the account where they were electronically deposited or the bank could charge fees on them.
   • If you think a bank is illegally taking “protected funds” from your account you can use this link to find legal aid in your state.

I would suggest that if you are having problems with your bank it might be best to have your social security funds deposited into a Direct Express card. You can still maintain a bank account for funds from other sources.  Just make sure to follow the tips on how to make the most of your Direct Express card:

1. Only take one free withdrawal from an ATM each month. If you need to withdraw more, go to a bank that accepts Mastercard and withdraw (it’s free). If you make more than one ATM withdrawal per month you will be charged a fee.
2. You can get a free notification of when your funds are deposited by phone, text or email. A small fee is charged if you want a paper copy.

Useful Links with more information

• http://www.fms.treas.gov/directexpresscard/index.html
• https://www.usdirectexpress.com/edcfdtclient/index.html#
• http://www.nclc.org/images/pdf/high_cost_small_loans/direct-express-2pager.pdf
• http://www.lsc.gov/find-legal-aid
• http://www.ptla.org/social-security-and-va-electronic-payments
• Click here to find a credit union in your area.