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How Banks Use Overdraft Charges to Get Your Money

posted 22 Nov 2010, 15:49 by Sam Mbale   [ updated 22 Nov 2010, 15:51 ]

Overdraft charges from your bank or credit union can be a
major pain in the pocketbook. You probably are already in a
tough financial situation, now you have to add a bunch of
extra fees to your troubles.

There are some traps you can watch for to prevent being
charged for honest mistakes with your checking account.

Large Checks Are Cleared First:

Depending on the bank, you personal checks may not be
processed in the order they are received. Banks will often
process and clear checks for larger amounts first. You might
assume the reason they do this is because larger checks are
often more important payments - such as student loans and
mortgage payments. However, it could also be a way to milk a
little bit more money away from you.

For example - let's say four checks came in at the same time
- one for one-thousand bucks and one for 50 bucks. If you
have $950 in your checking account and the bank processes
the three $50 checks first, you'll only be charged one
overdraft fee. However, if your bank processes the $1,000
check first, you'll be charged a bounced check fee for each
of the four checks!  The bank just tripled its profits.

Debit, Check & New Overdraft Rules:

Believe it or not, debit cards account for around half of
all overdrafts each year. That could change now that rules
surrounding overdraft protection have changed.

It would make sense to think that when you purchase
something with your debit card and don't have the funds to
cover it - it will be rejected. This is not necessarily the
way it always happens - you now have to choose whether you
want to accept overdraft protection for everyday debit card
use, or decline it.

If you have overdraft protection for these transactions, you
could be charged a $30 overdraft fee for a $3 purchase. Take
some time to think about whether you need the safety net, or
whether you'd rather manage your money more carefully.

Be aware of the fact that the changes in how overdrafts are
handled do not apply to checks.

Pay the Fees As Soon as Possible:

You are basically getting a loan from your bank when it
covers the cost of an overdraft. If you fail to pay your
bank the funds you overdrafted, as well as any additional
charges almost immediately - you could face even more fees.
The majority of banks and credit unions give you seven to
ten days to settle any charges.

Four ways to fight overdraft fees:

1. Always reconcile your account as soon as possible
following an overdraft

2. Leave some pad in your checking account. You could put
$100 or more in your account without recording it in your
register. That way you won't use those funds.

3. Tie your checking account into a savings account or
credit line so overdrafts come from these sources before
they are covered by your bank.

4. Call your bank and ask them to drop the fee. Loyal
customers who don't normally overdraft can save money by
asking nicely.

Opting out of overdraft protection is another way to avoid
overdraft fees with your debit card. Instead of getting a
fee, your card will simply be denied at the register. If you
have a back-up form of payment like personal checks or a
credit card, opting out of overdraft protection might be a
good idea.

Remember that using a check transaction register to keep
track of withdrawals and deposits from your bank account is

While online banking keeps track of checks and debit
purchases that have come into the bank, there could still be
unprocessed charges or personal checks that you forgot about.

That's why keeping a separate copy of your personal finances
will help you avoid overdraft charges.

About the Author:

Kasey Steinbrinck has written in the television radio and
newspaper industries.  He now creates web content for Check
Advantage, which offers personal checks and business checks
directly to consumers. Visit today.