Watch out for those overdrafts
If you don’t keep a close eye on your checking accounts, you could be in for some major overdraft charges. Financial institutions typically tack on a hefty fee for drawing your account negative.
There are typically two different types of overdraft options. Knowing the difference between the two can be very important to your financial well being.
The first type of overdraft “solution” is typically an overdraft transfer. What happens is that if you were to overdraw your checking account below zero, the financial institution would take funds from another specified account to cover the difference. Typically a small fee between $2 - $5 is charged. This is the best option, and I would recommend that everyone sign up for it no matter how good your account balancing skills are. The reason for this is that if you don’t have this set up you will get an NSF fee which is typically over $20.
The second type of overdraft protection acts like a line of credit. This product will allow you to overdraw your checking account up to a certain amount for a given fee. If you don’t have the funds the transaction will still go through, but it typically costs over $20 per occurrance. If you are getting low on funds and you know you are going to overdraw your checking while waiting for payday you have a few options (one much better than the other). Option one is that you can continue to weild your debit card and get charged the $20+ fee for each transaction. This will add up a lot quicker than you think. Your $4 coffee is now $24 or more.
Instead, you should take option B. If you know you are going to have to dip into the reserves, you should go into your bank and withdraw everything up to your limit in cash. This will give you the funds that you desparately need, but the best part is that you will only be charged the overwithdrawal fee once. Use cash for all of your purchases, and when you get the money bring your account back up to zero.
With interest rates near all time lows, one overwithdrawal will wipe out all of your interest earnings for the entire year. Even if interest rates were much higher, why pay more in bank fees than you really have to?
Tags: , banking, checking, NSF, overdraft
April 10th, 2008 at 6:39 pm
[…] HappilyRetired.Com wrote an interesting post today onHere’s a quick excerptWatch out for those overdrafts April 10th, 2008 If you don’t keep a close eye on your checking accounts, you could be in for some major overdraft charges. Financial institutions typically tack on a hefty fee for drawing your account negative. There are typically two different types of overdraft options. Knowing the difference between the two can be very important to your financial well being. The first type of overdraft “solution” is typically an overdraft transfer. What happens is that if […]