In these times of economic turmoil and hardship, the last thing anyone needs is to have to pay useless fees. And that’s what bank overdraft fees are. They are essentially large amounts of money that just disappear. And once you are in that hole — along with credit card over the limit fees — it becomes especially difficult to dig yourself out of the pit.
Overdraft fees really add up
The issue with overdraft fees is that they can add up quickly. Every time a transaction comes back with insufficient funds, a fee is charged. That means that once you go negative, you are charged between $30 and $45 for every transaction. The worst part is that the bigger items are usually deducted first, as part of a daily balance method of reckoning. Which means everything is toted up at the end of the day.
If you have $600 in your account, and you have three transactions: $100, $50 and $625, the $625 will be deducted first at the end of the day — even if the $100 and the $50 transactions occurred earlier. So you get charged overdraft fees for the $625, and since you are $25 in the hole, you get charged for the other two as well. At my bank, which charges $39 for overdraft, that’s $117 basically thrown away.
Obviously, it would be more fair if things were done in order. Then you would only be charged for the $625 charge, since the $600 would have covered the other two, smaller, charges. Be warned: deposits aren’t counted until after the debits are taken out. And most banks only make $100 available. So even if you had deposited money, you still would have been charged overdraft fees for at least two of the transactions.
Understanding how overdraft fees are charged can help you avoid them in the future. Flexo at Consumerism Commentary offers some additional tips to help you avoid overdraft fees:
- Don’t take overdraft protection.
- Track your transactions (deposits and withdrawals) so that you know where you are at.
- Create a buffer for your balance.
- Link the checking account to a savings account. (Warning: Not all banks allow this.)