Overdrawing Your Bank Account
Bank accounts offer a range of tools to help you manage your money. However, some bank policies can work against you. If you overspend on a debit or check card, your account becomes overdrawn, which often leads to hefty fees. The penalties associated with overdrawing your bank account can be lessened if you understand how fees are applied.
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When Does Overdraft Occur?
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Overdraft fees occur when you spend more than your available account balance. Your available account balance includes any money posted to your account. For example, if you deposit a check into your bank account and the bank places a short hold on the check to verify funds, this money is not added to your available balance until the hold is lifted. Unfortunately, making a payment with your debit or check card while a deposit is pending can lead to overdraft fees. Wait until your available balance updates to use funds deposited into your account.
Reordering Transactions
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One major criticism of bank overdraft fees is the bank's ability to reorder transactions. According to the Center for Responsible Lending, unauthorized overdrafts strip $23.7 billion each year from checking account holders through high fees and unfair practices. By reordering how your transactions are deducted from your account, you pay more in overdraft fees. For example, if your account balance is $50 and you make payments of $20, $15, $5 and $100, respectively, you should incur one overdraft charge on your account. However, if your transactions are reordered, the payments are deducted from highest to lowest, which means you pay four overdraft fees instead of one.
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Ledgers
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The primary way of fighting overdraft fees is to record your transactions in a checkbook ledger. Recording your transactions helps you to keep track of the exact money in your account instead of relying on your account balance. Your account balance may not reflect recent credits or debits from your account, which can lead to overspending. Bank ledgers are available online or using spreadsheet software. Update your ledger after each transaction to avoid missing a transaction. Save your receipts to reconcile your expenses at the end of each month.
Overdraft Rules
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Overdraft protection is an optional service. As of 2011, you must authorize your bank to provide you with overdraft protection before fees can be applied to your account. When making a purchase, if funds are not available in your account, the transaction is declined. The Federal Reserve Bank mandated that consumers who failed to render consent by Aug. 15, 2010 would be excluded from overdraft protection. Account holders can opt in to receive overdraft coverage if they prefer having access to money to cover costs in the event of an emergency. Opting in to overdraft protection, however, can be costly.
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