Tips To Help Avoid Getting Stuck With Bank Overdraft Fees
Just about everyone has, at one point or another been slapped with an overdraft fee. Sometimes it is our error, but often times it is the bank that is tripping us up to maximize their overdraft fees. Overdrafts ended up costing Americans over $24 billion in overdraft fees last year alone, so overdraft fees are big business for banks and credit card companies. Banks love to fee people to death, and they can be quite sneaky on how they manage to assist us with over drafting our accounts. Knowing the tricks banks use to rack up the overdrafts can help you avoid them.
One example of an overdraft trick banks love to pull is as follows. Most banks charge $35 dollars per overdraft, per transaction. Lets say you have $1000 dollars on the 1st of the month. You write a check on the 7th of the month totaling $650 for the rent, which brings you down to only $350 dollars. On the same day you send in your car payment via a check for $300 dollars, you now have only $50 dollars left. Earlier in the week on the 2nd you shopped for food which cost you $75, you bought some movie tickets for $18 on the 3rd, and on the 5th you forgot you used your debit card for coffee and on the 6th you bought a pack of gum for .79 cents at the mini market on your debit card. Later you find out the bank has hit you for 4 over draft fees, but the only payment that should have resulted in an over draft fee would have been the car payment for $300 dollars that you wrote on the 7th of the month, the smaller charges, which are the charges the bank is nailing you to the wall with over draft fees were made much earlier in the week when your account was still in a positive account balance. Whats worse is the banks typically only give you a few days to pay the overdraft fee or you face a new fee, the late fee. it is not uncommon for those falling into the overdraft trap to end up facing multiple fees.
How did this happen? Simple the banks fudged the order of processing your account to rack up over draft fees. Larger banks tend to do this, this trick is rarely ever done by credit unions and small local banks. By changing the order in which checks clear or by delay the posting deposits or debits to your account they can rack up overdraft fees on you. The banks call this the “biggest check first” policy. The banks reasoning to the public is that they process the biggest checks first so peoples rent or car payments do not bounce. This of course isn’t true, their chief concern is getting as many overdraft fees as possible on your account. The sheer number of smaller transactions ends up being much more than one simple overdraft checking fee of only $35 dollars.
You can however opt out of your bank’s courtesy overdraft loan program. This means you will be responsible for balancing your check book and keeping closer tabs on your account balance. By opting out of over draft protection, any purchases you attempt on your debit card will no longer clear. It also means transactions will not through, and if you write a bad check you will be hit with a bad check fine. Opting out does not cover bounced checks, pre-authorized electronic payments or recurring debit card charges.
There are other ways to avoid overdrafts and the resulting fees. Using a smart phone app to keep track of your checking account for example will always keep you up to date on your account balance, if you make a habit of checking it daily and after purchases. Smartphone apps can also show outgoing scheduled payments such as Netflix, mortgage, and car payments. Using a cash cushion in your checking account of anywhere from $300 to $500 also can help you avoid over drafting your account.
If you are prone to over drafting, a good preventive measure would be to avoid automatic payments. If you have pre-authorized routine payments set up, try to set them to manual payments so you can better keep track of your finances. Automatic payments catch a lot of people in the red due to them forgetting to enter the amounts in their check books. For deposits, stick to direct deposits as this money tends to clear faster than a check. Another method available to most consumers is the ability to link your savings account or credit card to your checking account. Your bank will draw out of the linked account in the case of any overdrafts, which will allow you to avoid overdraft fees.
With a little knowledge and practice you can always avoid overdraft fees and keep the banks heavy hand out of your checking account.