A friend of mine was at a bank recently and called me after he left. “What exactly is overdraft services, and do I really need it? The banker I just met with seemed pretty adamant that I was making a mistake by not taking it.” He was asking me because he knew I had spent 7 years as a banker for one of the larger national banks.

I laughed at his question. I was quite familiar with the banking point of view on this “service”, and I use that term loosely. It really is a way to gouge customers for more money, and nothing more.

One of the fallouts from the financial crisis of 2008 was a change in banking regulations. Part of that change included how banks handled their practices of charging customers overdraft fees. In the past, your bank would let almost any debit card purchase go through, even if you did not have sufficient funds in your account to cover the charge. They would then charge you a fee ranging from $27 to $40 for the “privilege” of having that charge paid and not having your debit card denied.

The most common fee among the big banks I found was about $35. Let’s say you misbalanced your check register, or in the bank’s view even better was that you did not even keep a register, and you had $2 remaining in your account. You were purchasing a coffee and a pack of gum and a local retail store that cost $4. The bank would allow you to make the purchase and then charge you an overdraft fee of $35. So that $4 cup of coffee and pack of gum actually cost you $39.

After the change in laws, new accounts that were opened lacked this coverage. A consumer has to request it, or opt-in to have the service.

Banks will try to encourage this by saying it was better than having your card denied. They will often train their bankers to tell a story of being at a restaurant after just having dinner. What do you do if your card is declined? Allowing the overdraft saves you the embarrassment of not being able to pay for your meal.

Well, here is a better idea. Carry a second form of payment with you all the time.

Overdraft services, as banks call it now, is nothing more than banks trying to recoup this lost revenue. It provides consumers with no benefit whatsoever. If you go into your bank to open a new account, the banker will probably try to ask you if you want to opt-in to the overdraft protection. I know all the large banks like Wells Fargo and Bank of America train their employees to do this. Many of the smaller ones do too. No matter what kind of BS line they try to feed you, overdraft services only benefit the bank, not you.

Large banks have started to enter the pre-paid debit card market. Their entry into the market is helping to drive down the once exorbitant fees associated with these cards. The big national and regional banks are also starting to make fees less complicated by offering low, fixed monthly costs, according to Greg McBride, senior financial analyst at Bankrate.com.

Banrate.com released a new survey today which found that 13% of issuers, mainly large banks, charge a single monthly fee of $4.95 to $7. This is a much better deal than with most pre-paid debit cards, which have hit customers with fees for things like checking balances, ATM withdrawals, and even enrollment. These fees can add up quickly. Many consumers have been paying $20 a month or more just for average use.

These high fees have made these cards something I have long advised people to stay away from. With the big banks entering into the mix and offering reasonable rates, these cards can be a useful tool for teaching your children about banking and managing their finances.

If you give you child one of these cards, you can control how much money is available to them. The cards will not let them go over the preset spending limit. It’s a great way to show them how to track expenses and keep a ledger of their balance.

Before going this route, be sure to shop around for a card with a low monthly fee. Make sure they are not going to get charged for every little thing. Avoid cards that charge a fee to reload a balance onto them.

This will allow your son or daughter to have something very similar to a bank account with facing the possible repercussions of mishandling a bank account.