Advice On Overdraft Fees

by nicholevera

posted on 08/18/2009

We all know that banks charge outrageous fees for their services. Most of us also know what it feels like to pay $35 for a burger and soda at McDonalds after the overdraft fees are added in. While many people choose to shrug off their overdraft fees and concede to paying, you may not realize how those $30 charges add up over the course of a year. Just think, if you get just one overdraft per month that's $360 per year that you're paying the bank just for the privelage of having a checking account. Suddenly that "free" checking account you signed up for isn't so free.

While it is an account holder's responsibility to ensure that there are sufficient funds in the account to pay all obligations, the banks use several dirty little tricks to make sure they make the most profit each time your account dips into the red.

Here are a few tips to help avoid overdraft fees and keep the money in your wallet instead of the banks'.

Ask for a courtesy reversal
You won't know unless you ask. Most banks are willing to reverse a fee if your account is generally in good standing. Some banks even advertise one free fee reversal per year on your account. To get started you can either call the 800 customer service number or go to your local branch. Depending on your bank you may be better off going to the branch where your account was opened (sometimes they tend to be more lenient than the customer service center). Keep in mind the best way to get your fee reversed is to be nice and be direct. Calmly and politely explain your situation, and if the overdraft was due to your oversight admit fault and then nicely as for a courtesy reversal. Most times you will get a yes to at least 1 fee reversal. If you are getting resistance from the customer service representative calmly request to speak to a manager. Sometimes the front line workers don't have any authority to reverse fees anyways. If you're getting resistance consider taking your business elsewhere.

Beware of "unavailable" funds fees
Along with overdraft fees man banks also charge an unavailable funds fee. Even though the money is technically in your account you can't use it yet. These fees generally cost the same as a traditional overdraft fee. Unavailable funds fees happen when you make your deposit on the "next business day" (usually after 2:00 PM) or you deposit a check and a hold is placed on it. Check with your bank for their hold policy so that you are aware when your deposits will be cleared and available to you.

Ask about your banks posting policy
In an effort to generate more fee income many banks will maniupulate the posting of their daily transactions. Your bank should be posting your daily credits (deposits) to your account before debits (checks and other charges). You can check your account history to verify if your bank is doing this. What is less commonly known is that many banks will post debits in order from largest to smallest. This greatly increases the odds of earning multiple overdrafts. The banks' excuse is that larger amounts are generally more important payments such as mortgage, rent or car payments and should take priority over smaller charges.

Consider opening two separate accounts
It's hard enough to manage money coming in and going out of your account on a monthly basis. Add to that the complexity of ATM / debit cards especially if you have a joint account with two cards, and you can be setting yourself up for trouble. Consdier having one checking account that is used soley for bill payments and one that is used for daily purchases such as gas, lunches, groceries etc, using the ATM / debit card.

Be wary of auto bill payments
Billing departments love auto pay and so do the banks. Auto bill pay via your checking account or debit card may be a convenient way to avoid late fees, but if you're not careful you can end up paying a lot of extra money for this convenience in overdraft fees. With auto pay your bills are automatically deducted from your checking account /debit card/ credit card on a set date each month for the full amount due on your account, or a set amount that you agree to when you set up auto pay. This may not be a problem with bills that are a fixed amount each month (i.e. gym memberships) however you may get into trouble with bills that fluctuate from month to month (i.e. electricity or phone bills). Generally banks will be more than happy to put your account into the negative to honor these auto payments so that they can charge you $30. If you're not accustomed to keeping a significant cushion of money in your checking account as a safety net against unexpected charges, you may want to gather your bank statements and see if automatic bill payments are really worthwhile for your bottom line.

If all else fails consider ditching the debit card
The majority of overdraft fees are incurred not from bill payments or checks written but from ATM / debit card transactions. While many banks make an effort to put funds "on hold" the moment you swipe your card, there are instances where charges may not show up until days later when they've been long forgotten. Examples of these include, gas charges, and restaurant charges. Many restaurants only authorize for the amount of your bill and do not include the tip in the total until the transaction actually posts. Gas stations on the other hand generally don't hold more than $1 on your account and then post the full amount of your purchase up to 3 days later. You also need to be careful if you're using your card at a bar or nightclub. Many of these businesses will hold double the amount of the actual charge to ensure they get paid. While this is great for them, it could easily send your account into the negative if you're not expecting it. Make sure to check your account online frequently and be aware of any check card holds that are on your account.

Try switching to a credit union or community bank
Community banks and credit unions are generally more fair with their banking practices. Credit union members are the owners of the institutions therefore fees are much more reasonable. Local banks also may not be as "fee happy" and may be more willing to work with you on reversing a fee if you do happen to overdraft your account.

Keeping a close watch on your bank account will ensure that you are not paying excessive fees to the banks for your account usage. With careful planning and management you can ensure that your free checking account stays that way!

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