Authored by Douglas Mefford in Banking
Published on 05-29-2009
Writing checks or making ATM purchases that total more than you have in your checking account can have devastating consequences. As well as the embarrassment of collecting a bounced check from the merchant it was written to there are the high fees a bank charges for the Non-Sufficient Funds (NSF) event. To help avoid such problems, most banks have developed various Overdraft Protection programs.
Courtesy overdraft-protection plans often come as part of a checking account package. With automatic enrollment in the program you should, for a fee, never have to worry about a bounced check. Some disadvantages to such a program include an overdraft coverage fee that is not much less than a NSF penalty and they do charge a daily interest on the overdraft until paid. There is also no guarantee that the bank will honor every overdraft.
Another overdraft protection plan will link your savings account to your checking account so that a NSF amount will be pulled from the savings to cover the withdrawal. Again, this does come at a price, as there will be the bank’s transfer fee charged for this service. Similarly, a bank may offer to have the checking account linked to a credit card. The fees for a linked account to a credit card are generally the same as if you had taken out a “payday advance” loan. You will be responsible for both the loan advance fee and the credit card interest on the amount of the transaction.
Some banks also provide an unsecured credit line specifically for use with NSF events. The drawback to these credit lines include a high interest rate and fees that are often more expensive than independent Cash Advance companies.
The best way to avoid a bank overdraft is to take care to prevent an NSF event from happening in the first place. Always remember to take the time to balance your checkbook! Letting this simple task build up can quickly lead you to having spent more than you are aware of. If you use a combination of checks, ATM withdrawals and debit charges, the task of keeping up with how much you really have in your account. Check with your bank to find out just what their check deposit policy is and how long the require you to wait before you can access the funds.
You should also check with your bank to find out in what order they process incoming checks. Generally a bank will process the highest amount check first and then work their way down to lower amount checks. What this means is that if there are not sufficient monies to cover all of your checks coming into the processing department, you may find that you are subject to multiple NSF changes. Conversely, if they worked up from the lowest amount check there could possibly be only one NSF charge that could be applied. Currently eight of the ten biggest banks in the United States process not only checks but also electronic funds transfers using this same method. The research firm Moebs Services has determined that these banks expect an annual return of over $53 billion just on overdraft fees by using this method.