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10 Tips on Avoiding Overdraft and Bounced Check Fees Part 1

Things have changed down at the local bank. It used to be that what was in your account was all the money you could have.  If you wrote a check for more than what was in that account, it bounced.  The same principle applied if you went to the bank machine for some cash.  If you wanted more than you had, it said no.  If you did bounce a check, not only was that a problem, you also faced down a serious fee the bank put on your account.

These days, banks use something called overdraft protection.  This system lets you spend more than you have in your account.  If you pay a bill or use your ATM card to get money out of that account and there isn’t enough here, the bank will cover it and pay that bill or give you the cash.  Instead of rejecting those transactions, they pay them and put your account into a negative balance.

What has not gone away are the hefty fees.  Each time the bank pays a check that pushes your negative balance higher, they also take out a fee that can be as high as $35 per overdraft.  This is more than just the bank helping you avoid bouncing checks.  Overdraft fees are a huge source of profits for banks.  Experts report that banks collect over $17 billion a year in overdraft fees from people like you and I who are having trouble with their bank accounts.  So here are 10 ideas to defend yourself against this predatory practice banks engage in.

• Religiously maintain your check register. Each time you write a check, record it in the register that is with your checkbook.  Use that same register to note every time you use your debit and ATM cards.  If you pay fees for ATM usage, record them.  If you pay fees for using your checking account, record them.  Along with your checkbook register, keep a master check register that you reconcile every month so nothing gets by you.

• Automate paying your bills. You can set up a system where the bills you pay each month are automatically taken out of your checking account on the date you specify.  That way, you never have to worry about not getting a bill paid.  You can also work with the companies you pay each month to set your payment date so it fits with when you get your paychecks.

• Balance your checkbook. This should be a priority because it forces you to examine your bank account statement in detail.  You should recognize every transaction you see there.  Most big problems that people have with their bank accounts surface when they balance their checkbooks.  Using an automated checkbook management software package like Quicken makes this a breeze.

• Never spend it all. Don’t view all of your bank account as money available for spending on bills.  Allocate a small fund of $100-$500 to serve as a cushion.  Let that stay in your bank account and set it aside so it is not part of your budgeting process.  It stays there to be a safeguard if your account balance gets away from you.  If there are charges that threaten to push your account into overdraft, that cushion can stop that from happening.

• Let the internet alert you. Your bank can set up a system that if your account reaches a low threshold, you will get an email or a text message on your cell phone.  If that alert comes in, it can happen well before you are in danger of over drafting your account and you can take action to stop it.

Click here to see Part 2: 10 Tips on Avoiding Overdraft and Bounced Check Fees Part 2

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