Home Members Tools Credit Cards
   

  • Banks Offer Protection From Overdrafts, Not From Fees

    When your bank receives a transaction that exceeds your checking account balance, the bank will do one of two things. They can either process the transaction or they can return the transaction to the merchant. Many people would like the bank to go ahead and process the transaction and banks will give you this courtesy, if youíve opted-in to having overdraft transactions processed.

    However, youíll pay a fee if the bank pays a transaction when you donít have enough money in your account to pay for it yourself. In a sense, youíre borrowing money from the bank. This ďcourtesyĒ of processing overdraft transactions helps you avoid bounced checks and declined debit card transactions. In return for the courtesy, the bank charges you an overdraft fee and the fees arenít exactly cheap. According to TIME, the median overdraft fee was $29 in 2011. Market Watch predicts fees could go as high as $40 to $45 this year. That could be a steep price to pay, especially if the overdraft is only a few dollars.

    No Overdraft Without Permission

    Even though the Federal Reserve passed a law giving consumers the option to disallow overdraft transactions and thus overdraft fees, we still paid almost $30 billion in overdraft charges in 2011. If consumers have the ability to tell banks not to process transactions that would cause overdraft fees, why are we still paying so much?

    Consumers may have agreed to overdraft fees out of fear having their debit cards be declined Ė which is what would happen if they opted-out of overdraft protection. For some consumers, an overdraft fee is better than multiple non-sufficient funds fees from the bank and a returned check fee from the merchant, which is what happens when overdraft protection is turned off. For some customers, that type of penalty may be the thing that forces them to keep their checking account balance in check.

    Some banks offer an additional service that would allow you to avoid the overdraft fee. This overdraft protection pays overdraft transactions from your savings account or charges them to a line or credit. However, banks even have a fee for this service. The fee is cheaper, often $10 or $15, but it is still more than youíd pay if you never overdraft at all.

    You Canít Cheat Overdrafts

    Donít skirt too close to your balance thinking you can float transactions or minimize your overdrafts by making purchases in a certain order. Unfortunately, you have no control over the order in which your transactions are processed.

    In recent years, banks have come under fire for processing transactions in a way that would causes more overdraft fees, which isnít necessarily in the order you made the transactions. You might make several small purchases and then one big purchase thinking only that big-ticket item would overdraft, but youíd probably be wrong. With a stack of transactions in front of them, many banks will process the biggest item first and then all those smaller items would overdraft leading to several overdraft fees instead of the one that youíd planned for.

    The best way to avoid fees from overdrafts and bounced checks is to spend only as much money as you have in your checking account, nothing more. Itís a good practice to have a buffer of $500 to $1,000 in your checking account. The buffer acts as a safety net to catch transactions that might have otherwise caused you to overdraft. Never let your account balance dip below your buffer and youíll never overdraft.

    Be responsible with your finances. That means checking your account balance frequently and keeping up with your transactions. It means never swiping your debit card or writing a check you know you canít cover today or that you wouldnít be able to cover after pending transactions have cleared. Yes, that may mean sacrificing something right now, but it also frees you from overdraft fees.

    Many banks will forgive an isolated overdraft fee. If you accidentally overdraft, call your bank and explain. Let them know it was a mistake and ask that they waive the fee. Fee forgiveness isnít an option for habitual overdrafters. Youíll have to fork over the fees and get more disciplined about your spending if you want to avoid future overdrafts.

    Sources: Moneyland.Time.com, Market Watch
  • Disclaimer

    Information in these articles is brought to you by Finance Globe. Banks, issuers, credit card, and other companies mentioned in the articles do not endorse or guarantee, and are not responsible for, the contents of the articles and is further subject to our terms and conditions.
  • Recent Headlines and Articles

    ChrisB

    Overlooked Benefits of Online Banking

    Many years ago, nobody would have given online banking a second thought. In todayís world, with so much advanced technology, this is something millions of people have fallen in love... read more
    ChrisB October 23rd, 2014, 09:20 AM
    ChrisB

    3 Alternatives to Traditional Retirement Saving

    When it comes to saving for retirement, you know one thing to be true: more is always better. While this may be the case, some people donít have enough time or earn enough money to reach their goals.
    ... read more
    ChrisB October 22nd, 2014, 09:27 AM
    ChrisB

    5 Ways to Save More for Retirement

    Is retirement age closing in on you in a hurry? Are you worried that you donít have enough money to hang up your work boots for good? If you find yourself in this position, you can take comfort in knowing that you are not alone.... read more
    ChrisB October 21st, 2014, 08:38 AM
    ChrisB

    The Cost of Upgrading your Companyís Technology

    As a small business owner, you likely understand the importance of technology. Some companies are ahead of the times, while others are lagging behind and looking for a way to catch up.

    If you feel that now... read more
    ChrisB October 20th, 2014, 09:53 AM
    ChrisB

    The Benefits of an Online Life Insurance Quote

    When the time comes to purchase life insurance, you have several options for starting the process.

    Some people know an insurance agent who can help them. For this reason, they contact the person... read more
    ChrisB October 16th, 2014, 10:32 AM
    ChrisB

    Is it Time to Purchase a New Computer for your Business?

    In todayís day and age, most companies, regardless of size and industry, understand the importance of taking full advantage of technology.

    The computer you are using today may not... read more
    ChrisB October 14th, 2014, 10:33 AM
    ChrisB

    What is the True Cost of that New Car?

    As you begin your search for a new car, it is easy to get drawn in by shiny paint, high tech features, and so much more. While there is sure to come a time when you focus on the sticker price of the vehicle,... read more
    ChrisB October 13th, 2014, 09:48 AM
    ChrisB

    How to Get the Best Price on Flooring

    One of the best updates you can make to your home is new flooring. This can take any room, regardless of the size and style, to the next level in terms of appearance and comfort.

    ... read more
    ChrisB October 10th, 2014, 09:37 AM
  • Recent Article Comments

    Wanderer

    Overlooked Benefits of Online Banking

    Took me a long time to buy into online banking. The benefits of availability coupled with much... Go to last post

    Wanderer October 24th, 2014 03:05 AM

 

 

 

Credit Cards | Finance Social Network | Credit Card Reviews | Markets
About Us | FG on the Web | Sitemap | Privacy | Terms | Contact


Copyright © 2014 Finance Globe. All rights reserved.