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.
At this point, your bank has two options. It either pays the amount of the transaction or it doesn't. If it chooses to pay in spite of you not having the money available, you will be charged an overdraft fee. If it chooses not to pay and returns the check, you will be charged 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.
Be on the lookout when it comes to transactions where you don't have to write a check or pay with cash: ATM withdrawals and fees, debit card purchases, and online payments just to name a few. Online bill payments on a monthly basis for utilities, insurance, or loan payments should also be thrown into the mix. Always be on top of your account balance and in case it shows a higher amount than what it's supposed to, be careful and look for transactions that haven't cleared yet.
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).
In the unfortunate case where you account is negative, make it a priority to deposit some money into it so as to have a positive balance once again. The bank will deduct its overdraft fee from the account, so keep that in mind when determining how much to deposit. At this time, you might also be offered other ways to cover any future 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.
At this point, your bank has two options. It either pays the amount of the transaction or it doesn't. If it chooses to pay in spite of you not having the money available, you will be charged an overdraft fee. If it chooses not to pay and returns the check, you will be charged 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.
Be on the lookout when it comes to transactions where you don't have to write a check or pay with cash: ATM withdrawals and fees, debit card purchases, and online payments just to name a few. Online bill payments on a monthly basis for utilities, insurance, or loan payments should also be thrown into the mix. Always be on top of your account balance and in case it shows a higher amount than what it's supposed to, be careful and look for transactions that haven't cleared yet.
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).
In the unfortunate case where you account is negative, make it a priority to deposit some money into it so as to have a positive balance once again. The bank will deduct its overdraft fee from the account, so keep that in mind when determining how much to deposit. At this time, you might also be offered other ways to cover any future 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 chex systems on Money Galaxy, a personal finance blog I contribute to.
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