On May 16, ING Direct will change the rate is uses to determine the cost of overdrawing the Electric Orange checking account.
ING Direct’s overdraft system is a little like Passover, where we ask how this bank is different than all other banks. Rather than charging an overdraft fee if you send an electronic check or other electronic payment that exceeds your balance like most other banks, ING Direct extends a small line of credit and charges you interest for its use. The amount of interest is based on what ING Direct calculates as a prime rate plus a margin.
That margin has been, and will continue to be until May 16, a rate of 4%. Added to the ING Direct Prime rate, the total interest charged for using the line of credit feature of Electric Orange has been 7.25%. That margin rate will increase to 8% on May 16, and when added to the updated ING Direct Prime rate, will result in a total interest rate of 11.25%. ING Direct’s terms allow for this rate to be variable. In fact, ING Direct can increase the margin up to 12% without changing the terms for all customers. I expect, since that condition is currently allowed, for ING Direct to follow through and increase that margin some time in the future. Meanwhile, current customers of the Electric Orange checking account who use the line of credit should be aware that they will be charged more beginning May 16. As of 10.21.11 the ING Direct savings rate is 0.90% APY and the checking rates are 0.20% – 1.10% APY.
Even with this increase, this line of credit is a better deal than most overdraft protection terms offered by other banks. Rather than a fee of $25 to $35 per overdraft, you could be paying less than a dollar if your use of ING Direct’s line of credit is temporary.
For those who would rather have their transactions rejected than dip into a line of credit, the bank allows customers to cancel their overdraft coverage by calling 1-888-464-0727.
Do you use ING Direct’s line of credit? I used it once, when a deposit I scheduled was unavailable before a scheduled payment hit my Electric Orange account. I owed the bank just pennies for the protection, but I try to be more careful when scheduling my deposits and withdrawals.