If you’re not paying close attention to your checking account, it is very easy to overdraw the account or bounce a check. It’s likely happened to all of us, at least once. You wrote a check for something, but forgot to record it in your register. Then a couple days later you forgot all about the check and used the money for something else. Then later, when the check is presented to the bank, there is not enough money to cover it, overdrawing your account. At this point, the bank charges you an overdraft fee, usually ranging from $15 to $30. Luckily, we learn from our mistakes and move on. I’m going to share with you things I have learned and some tips to protect yourself from being charged overdraft or bounced check fees.
One thing you need to realize about these fees is that they are income for the bank. Banks make millions of dollars by charging these fees, and they are banking on us to make an error, to forget about a transaction. That one missed transaction then causes a chain reaction, possibly causing other items to overdraw your account. If multiple items overdraw the account, you are charged a fee for each item. And it is also possible for the overdraft fees to cause you to overdraw even more items. It is a vicious circle, but preventable if you regularly track your account.
The best way to protect yourself from the overdraft fees is to keep track of your account. Balance your check book often, and record every transaction when you make it. If you have internet access, take advantage of online banking and check your account. If you see things are getting close, you can transfer some money from your savings just in case. Also, it is a good idea to have a budget. That way you know how much money you have to spend and you can make an effort to not go over that amount. When paying bills, if it will overdraw the account, see if there is a grace period or late payment fee. If there is a grace period, or no fee for a late payment, it is better to hold off on making the payment until you get more money, than to pay it and overdraw the account.
Most people associate overdrawn accounts with writing checks. But it is just as easy to overdraw your account with a debit card. If you use your debit card, always use the debit option. This means the funds will be deducted from your account immediately. If you use the credit option, the transaction could actually stay pending for several business days before the funds are deducted. If you do not record the transaction, you may forget about it and when it does finally get presented for payment, it may overdraw the account.
Another area that gets people in trouble is the Automatic Teller Machine (ATM). If the ATM does not belong to your bank, you are likely being charged a fee by the machine and also a fee by your own bank. These fees can add up to $4 or $5, and if you forget to record them in your register, they could cause you to overdraw your account.
Another way to protect yourself from overdraft or bounced-check fees is to link your savings account to your checking as an overdraft protection source. That way, funds from your savings will be automatically transferred to your checking so the transaction can clear. You can also link a line-of-credit or credit card to your checking as a back-up overdraft source to your savings account. Just be careful though, this is a good way to get into debt.
It is useful to be aware of things that can cause your account to go overdrawn and things you can do to prevent it, as well as the fees associated with it. Incorporating these tips may be a little difficult at first, but just taking the extra time to record something in your register right away or to check your balance online, could save you tons of money.