There's nothing like adding a little insult to injury. That's exactly what happens when your bank charges you overdraft fees after you accidentally overdraw your checking account.
It isn't enough that you already don't have enough money to cover your expenses - now the bank wants to charge you even more. The fact that financial institutions make a huge profit off of charging customers for overdrafts doesn't help either.
There are some traps you can watch for to prevent being charged for honest mistakes with your checking account.
Big Checks Get Processed First
Banks and credit unions don't necessarily process your personal checks in sequential order. Many times they'll clear checks for a larger amount first. You could say this is because they assume larger checks are more important - like mortgage payments or car loans. But it could also be an attempt to squeeze a little more money out of your wallet.
For example - let's say four checks came in at the same time - one for 1,000 dollars and three for 50 dollars. 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 Cards
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. Read more about it in our article New Overdraft Rules and Personal Checks.
You might assume that if you try to use your debit card and don't have enough funds in the account - it will be rejected. That's not necessarily the case - 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.
Pay Your Bank Back
When your bank or credit union covers the cost of an overdraft, you are essentially being given a loan. If you don't repay your bank the money you overdrafted and any fees you may owe quickly - you could face even more fees. Most financial institutions give you a week to ten days to repay what you owe.
Four tips to help you avoid overdraft fees:
Always reconcile your account as soon as possible following an overdraft
Leave some pad in your checking account. You could deposit $100 or more without recording it so you don't use those funds.
Tie your checking account into a savings account or credit line so overdrafts come from these sources before they are covered by your bank.
Call your bank and ask them to drop the fee. If you are a loyal customer with a good reputation, simply asking nicely could save you some money.
Of course, the best way to avoid overdrafting your checking account is to keep track of what's available to you. The best way to do that is to use a check transaction register. You'll get one for free when you order personal checks and business checks online from Check Advantage.
Here's another way to avoid extra charges from your bank - Order checks online today and save as much as 75% off what your bank charges you to reorder checks!
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