A basic but informative and well-written piece from the Christian Science Monitor on what causes most checking account overdrafts, what to do if it happens, and how to avoid overdrafting in the future:
What to do if you overdraw your checking account
By Jason Price Guest blogger / March 12, 2010
Have you overdrawn your checking account before? You log into your checking account online and see big red numbers with a negative sign. It’s your account balance and you’ve overdrawn! But you’re a good money manager, right? You have your finances in order. How could this have happened?
No one really wants to be in this particular situation, especially, since most banks charge fees for every transaction overdrawn. Ouch! You make such a mistake and the bank will make you pay for it.
And pay you will. Bank of America currently charges $35 per transaction overdrawn with a limit of four per day. That could mean you could pay the bank up to $140 per day.
So, how do most people overdraw? I think there are probably 4 common ways to overdraw your checking account.
4 Ways to overdraw your bank account
1. You don’t talk about money, or forget to talk about money with your spouse.
Married couples should talk about money and their spending decisions each week. This becomes even more important when you have a joint checking account. If you’re not talking, one person may spend money without the other knowing and before you know it, you’ve overdrawn.
2. You use both a credit card and debit card to make purchases.
If you’re switching back and forth between using a debit and credit card it’s easy to make a mistake and use the wrong card when in a hurry. Some people you use a credit card to pay for things in the first half of the month and typically pay it off in the second half after receiving another paycheck.
If you do use a credit card and then pay it off each month, I recommend picking the budget categories the credit card will be used for and not mixing and matching across categories.
3. You ignore your spending.
This one is obvious and probably the most common. If you’re spending without a plan and not managing your cash flow each month you’re bound to spend more than you have. Creating a budget is critical to keeping your finances in order.
4. Don’t track your spending.
Perhaps you don’t exactly ignore your spending, but you’re not exactly tracking it either. A good way to do this is either by writing down transactions in a not pad or spending form. A more common way that can save time is using budgeting software.
So, there you have it, 4 common ways to overdraw. So, what do you do if you overdraw your checking account?
What to do if you overdraw
So, maybe one of the above four situations is you. What do you do now and how do you quickly avoid $140 per day (remember, B of A charges $35 per transaction overdrawn up to 4 per day)? Consider these tips to correct the situation. Note: this approach assumes this is not a regular reoccurring issue for you.
1. Deposit cash as soon as possible
If you have the cash, or it’s in a savings account, make sure you get a deposit into the account to bring your balance back to a positive amount immediately.
Note: you don’t want to be in a situation where you have to wait a few days to transfer money from your savings account. If you have savings at another institution you need to be able to get that money out of an ATM ASAP. About the only way to do that is to have another checking account you can quickly transfer money from your savings to checking. This is a common situation for those who have savings in an online high-yield savings account.
2. Contact customer service
Don’t delay. Contact customer service as soon as possible. Contact customer service immediately and explain you have deposited money in the account. Try to do this all in the same morning to show you’re on top of your mistake and trying to correct it.
3. Humble yourself
Humble yourself and ask for help. Explain you made a mistake and simply ask “would you please help me by removing these overdraft fees.” The key here is making sure the person understands you made a mistake and that you now need help. Don’t point your finger back to the bank. Stay level headed, humble and kind and very often, the fees will be removed.
4. Be Persistent
Be persistent in working your issue. If someone in customer services doesn’t remove your fees, kindly ask to speak to a supervisor. Then, explain the story again asking the supervisor for help.
You have a few remaining options if the supervisor is unable or unwilling to help. First, you can call back and speak to someone else. Second, you can make a visit to your local bank (if possible) and speak to someone in person. Most of the time, with this persistence, you’ll be able to get your fees credited to your account.
Other preventive measures to avoid overdrawing
1. Overdraft protection services
Protect yourself with overdraft protection services. Bank of America offers over draft protection through a savings account, credit card or line of credit. Make sure you understand the agreement as transfers or other fees may apply.
2. Opt-out of overdraft protection.
Many customers don’t realize when they open their account that banks will let you overdraw by default, but charge a fee (usually around $30) per transaction. Starting in October of last year Bank of America changed its policy. They stopped charging customers who overdraw their accounts by less than $10 per day. They also limited the number of overdraft fees to four per day which are still $35 per overdraft. But, you have to tell the bank you want to opt-out of overdraft protection.
3. Keep extra money in your account
The final option is keep extra or hidden money in your account. Deposit a $100 but don’t record the transaction. In other words, forget the money is there and use it as a safe guard against overdraft mistakes.
The most important thing to keep in mind in overdrawing your checking account is that it’s you’re fault. Personally, I think it’s a little shady for banks to charge the fees (especially $35) and that people have to choose to opt-out. But remember, it’s your responsibility as the money manager to insure overdrawing doesn’t occur, so the fees can be avoided without excuse.
Okay, time for some honest comments. Who has overdrawn and how did you correct the issue?