Watch Out for Those Overdraft Charges
Have you ever looked at your bank statement and felt like screaming at the top of your lungs? Do you feel like you are throwing money out the window? Maybe you purchased an item for $197.99 and you have $197.85 in your checking account. Congratulations, you have mastered the art of bouncing a check! Most banks will charge you anywhere from $30 – $36, for being short 14 cents. This has probably affected almost all consumers at one time or another.
According to a recent National Public Radio story by Chris Arnold, banks have always explored new ways to debit money from their customers. Almost all banks have adopted the policy of cashing your biggest transactions first, such as mortgage or car payments. This information will be provided in the terms and conditions of your account or in the account agreement. Here is a direct quote from a banks policy statement:
“When processing withdrawals from your account, such as those made through checks, in-person withdrawals, Automated Teller Machines, point of sale, or by any other electronic means, it is our policy to pay the largest item first.”
Let us assume you have $500 in a bank account and in one day, the bank debits your account for three of your checks and a cash withdrawal at an ATM. Chronologically, your account would be debited as follows: Check #1 for $25, Check #2 for $40, ATM debit for $22, and check #3 for $495, totaling $586. If the bank cashed the checks and ATM charge in the order they were processed, you would be charged only one overdraft fee ($30) for check #3 ($495). Instead, the banks clear the largest check first. By doing this you will be charged three overdraft fees totaling $90. This has been an expensive day.
How to Avoid Overdraft Fees
Overdraft fees are not only costly, but also aggravating, so learn how to use all the tools at your disposal to manage your accounts and avoid these charges. Most banks have a toll free automated system that provides 24-hour account access. You can check your balance, verify what payments have been processed and which checks have cleared. Most FDIC institutions offer online banking services as well, so take advantage of your banks website. Some banks can even issue alerts to your email or cell phone when bills are due and can automatically issue payments each month for your regular expenses, like car loans or mortgage payments. Almost all of the online banking services will archive your purchases and bill payments. This can help you keep track of which bills you have paid and on what date. Also, if you have the possibility to use a direct deposit feature through your employer, take advantage of it. Getting your paycheck transferred directly into your bank account can help tremendously. If using the internet is inconvenient, then just keep a small calculator with you and log each transaction into your checkbook. The most important part is to deduct every purchase from your total balance to avoid those overdraft charges.
I Keep Getting Overdraft Fees
The good news is that most institutions have some kind of overdraft protection plan. Overdraft protection is a service to help you prevent from exceeding your checking account balance with purchases. By being enrolled in overdraft protection, funds from a savings account, money market account or a line of credit can cover the amount of the transaction not covered by your checking. Most institutions offer this service free of charge for signing up, but can assess fees up to $25 for each overdraft. So if you are tired of acquiring overdraft charges and you have tried tracking your purchases, it may be a good idea to contact your institution to see what they have to offer for overdraft protection.
DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt. Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email contact@dmcconline.org.
