Minimize Overdraft And Bounced Check Fees
The purpose of this article is to help you minimize the financial cost that comes with repeated overdraft and bounced check fees. Not only do they add up at the end of the year, but are a symptom of poor financial management skills, which can be very bad for your future.
What's an overdraft? Anytime you make a transaction for more than the amount available in your checking account, you overdraw it. That transaction can be the writing of a check, an ATM withdrawal, a debit card purchase, an online bill payment, and so on. What matters is that you used more than your available balance, and the negative balance that ensues is called an overdraft.
Your transaction puts your bank in a position where it has to decide whether whether or not it's going to pay the amount. Either way, the bank will assess you a fee. If the amount is paid for although you didn't have enough funds, the bank will assess you an overdraft fee. In case the bank decides that the check should be returned unpaid, it will assess you a bounced check fee.
The best way to minimize such fees is to manage your bank account so that you're not in a situation where you overdraw it. There are many ways you can keep close track of your account balance. Record all your transactions when you make them, without forgetting that any banking fee you usually pay has to be accounted for.
You will have to be especially vigilant about electronic transactions. Your ATM withdrawals (including any fees), purchases paid for with your debit card, as well as online payments can easily be forgotten and must be recorded ASAP. In the same vein, regularly scheduled online bill payments for utilities, insurance, or loan payments should not be forgotten. Know your account balance and remember that some transactions may take a while to clear if you see it's higher than what it should be.
Review your account statements each and every month. Between statements, finding out which payments have cleared is as simple as calling your bank to get your current balance, checking it online, or getting it from an ATM (assuming that you won't get charged just for checking).
If, unfortunately, you find yourself having overdrawn your account, you best bet would be to deposit some money back into it as soon as you have cash available. Remember that you will also have to account for your bank's overdraft fees. Some banks will take the opportunity to sell you on alternative ways to to cover overdrafts.
Most likely you will get to choose one of those options. You can either link a savings account of yours (at the bank) to your checking account, or apply for an overdraft limit of credit with the bank. In the first case, every time there is a transaction that would result in your checking account being overdrawn, funds are automatically transferred from your savings account to prevent that. In the case of the line of credit (which you will have to apply for and will be treated as a loan application when it comes to eligibility), your account will be allowed to operate with a negative balance, up to your credit limit. That balance will generate interest, and the credit line itself may be subject to an annual maintenance fee.
What's an overdraft? Anytime you make a transaction for more than the amount available in your checking account, you overdraw it. That transaction can be the writing of a check, an ATM withdrawal, a debit card purchase, an online bill payment, and so on. What matters is that you used more than your available balance, and the negative balance that ensues is called an overdraft.
Your transaction puts your bank in a position where it has to decide whether whether or not it's going to pay the amount. Either way, the bank will assess you a fee. If the amount is paid for although you didn't have enough funds, the bank will assess you an overdraft fee. In case the bank decides that the check should be returned unpaid, it will assess you a bounced check fee.
The best way to minimize such fees is to manage your bank account so that you're not in a situation where you overdraw it. There are many ways you can keep close track of your account balance. Record all your transactions when you make them, without forgetting that any banking fee you usually pay has to be accounted for.
You will have to be especially vigilant about electronic transactions. Your ATM withdrawals (including any fees), purchases paid for with your debit card, as well as online payments can easily be forgotten and must be recorded ASAP. In the same vein, regularly scheduled online bill payments for utilities, insurance, or loan payments should not be forgotten. Know your account balance and remember that some transactions may take a while to clear if you see it's higher than what it should be.
Review your account statements each and every month. Between statements, finding out which payments have cleared is as simple as calling your bank to get your current balance, checking it online, or getting it from an ATM (assuming that you won't get charged just for checking).
If, unfortunately, you find yourself having overdrawn your account, you best bet would be to deposit some money back into it as soon as you have cash available. Remember that you will also have to account for your bank's overdraft fees. Some banks will take the opportunity to sell you on alternative ways to to cover overdrafts.
Most likely you will get to choose one of those options. You can either link a savings account of yours (at the bank) to your checking account, or apply for an overdraft limit of credit with the bank. In the first case, every time there is a transaction that would result in your checking account being overdrawn, funds are automatically transferred from your savings account to prevent that. In the case of the line of credit (which you will have to apply for and will be treated as a loan application when it comes to eligibility), your account will be allowed to operate with a negative balance, up to your credit limit. That balance will generate interest, and the credit line itself may be subject to an annual maintenance fee.
About the Author:
Overdraft fees got you in ChexSystems? Read my report on banks that do not use chexsystems on Money Galaxy, a personal finance blog I contribute to.
posted by Credit Counseling at
1:53 PM
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