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Overdraft Fees: Beating Bank Checking Charges

Posted by Heather Brautman | Tue, Jun 11, 2013 @ 04:07 PM

Avoid penalty fee targeting.It’s not exactly bait and switch, but you may feel slightly betrayed when you realize that the overdraft “protection” you opted into with your bank isn’t really protection at all. It costs you, averaging $10 to $35 each time. In a study by the Pew’s Safe Checking in the Electronic Age Project, 18% of banking customers have been charged overdraft penalty fees in the past year. If you’ve withdrawn over what your account could cover at that time, it may have cost you more than you planned. And a surprising target is emerging: young consumers and lower-income spenders are taking on most of the fees. Those who earn less than $30,000 per year were twice more likely to have an overdraft penalty than people earning over $30,000 annually.

What Could You Do with $135?

Out of every ten people in the United States, at least nine have checking accounts, the top choice for financial transactions in America. The math could drive you crazy – one fifth of nine tenths of the entire country is incurring overdraft fees. The Pew report notes that half of overdrafters default up to five times a year, which can add up to $135 gone from your pocket. And there’s more – overdraft penalty fees incur fees of their own. A quarter of the people in the report who incurred fees didn’t pay them off in time, and therefore had their accounts depleted for even more (“extended overdraft penalty fees”). Almost all respondents in the survey said they defaulted by mistake (an interesting note of the survey shows that 7% of overdrafters do it intentionally). The banks don’t differentiate – your slip of the mind lines their pockets to the tune of $32 billion in 2012. For that much money, the banks could buy the entire countries of Afghanistan and Albania; or Curaco, Cypress, Cape Verde, and Antigua, according to the CIA. But it doesn’t have to be that way.

First Steps

Hold tight to your money.

One of the quickest things you can do to combat overdraft penalty fees is to trade up on your account. Choose an institution that doesn’t levy these fees. Search the web for banks with no overdraft penalty fees and don’t be afraid to check into online banking. Online institutions are just as secure for your money, but because they don’t have bricks and mortar overhead, they may pass along the savings onto you. And keep credit unions in mind. According to Bankrate.com, although credit unions are non-profit organizations, some may charge overdraft fees, but they’ll be lower than regular banks by about $5 on average. The Pew report notes that 1/3 of people who were assessed overdraft fees closed their accounts shortly after.

Stay Put, But Stay Smart

You may find your bank convenient, your tellers friendly, and your paper checks featuring cuddly animals adorable, and the idea of closing your account may be more headache than hot idea. In this case, it’s essential you arm yourself with all of the information you can get:

  • Visit your bank’s website and type “overdraft” or “fees” into the search box.
  • Visit in person and ask to speak to someone who can explain, in easy terms, the entire fee structure.
  • Opt out of overdraft protection. Banks don’t require it. You may face a bit of embarrassment with a returned check, but you won’t be charged the fee.

The Pew report notes that 54% of respondents did not think they had opted into the coverage (and 8% didn’t know), and only found out it was part of their account when they were levied the fees. By then, it could be too late. Think about how long it takes between when you have something charged to your account and when you get your statement (or more likely, when you get around to scrutinizing your statement line by line).

Taking Action

Check up on your checkbook.Get creative, get smart, just get going on ways to battle back. Aside from visiting the bank or closing your account, you can also do the following:

  • Closely monitor your account. After all, it’s your money. Defend it. Banks still provide paper check registers, so get into the habit of making a note of every bill, withdrawal, check, ATM withdrawal, and debit card purchase. When you balance your account to the penny, you don’t leave room for those hefty fees.
  • Go app-happy. See if your bank offers a free app, where you can check your account balance at any time. You’ll be able to see in real time just how much you have in your account before you spend, anywhere.
  • Manage your money, however works best. Break out the budgets, create individual savings accounts, stuff that piggy bank full.
  • Estimate how much overdraft fees cost you last year, then make a fantasy reward for 2013. It may be tickets to the big game, new shoes, or even a weekend getaway. When you start thinking about how those fees eat away at your prize, you’ll be more likely to make every attempt to avoid them.

What are your best tips for managing your money, figuring out funds, and planning for payments? Have you opted in or out? Know of a financial institution not charging these fees? Please share in the comments below.

 

Written by Heather Brautman