Recently I talked about the 5 Signs of a Good Checking Account. One of the things to look for is low or minimal non-sufficient funds or overdraft fees. Bank fees like this can really add up if you go negative, particularly due to numerous transactions at once.
Non-sufficient funds and overdraft fees were contributing to such a profit for banks that, in 2010, legislation was passed to allow consumers to opt-out of overdraft protection. Unfortunately, it appears that banks are still raking in a fortune on these overdraft fees in spite of this law.
According to a recent NBC News Business article Banks made $32 billion on overdraft fees last year, banks picked up an additional increase of $400 million in overdraft fees in 2012. This increase is in spite of the law that prevents banks from automatically enrolling customers in their overdraft protection plan. Not only are people paying overdraft fees, but they are also utilizing high interest payday loans to avoid these potential overdraft fees, because payday loans can be more economical than overdraft fees.
Newly introduced legislation (The Overdraft Protection Act of 2013) goes above and beyond the scope of the law passed in 2010 by limiting the frequency of fees, the processing of transactions in a way that would cause more fees than necessary, and fees incurred from a credit hold that is higher than the amount of the transaction. It seems that this new legislation would be a more effective way to rein in the banks in regards to overdraft fees.
Even though banks charge these fees, ultimately you are looked down upon for incurring them, so it is better to avoid non-sufficient funds and/or overdraft fees whenever possible.
Here are 4 ways to do so:
- Do your checkbook—Keeping your checkbook up to date will help you to know what you have and make it easier to stay within that limit.
- Reject overdraft protection—Some consumers choose to reject the coverage so that they can avoid the overdraft fees. If this will cause you to take your available balance more seriously, this can be a good tactic. However, if you still go over and they reject the transactions, you may have other concerns like non-sufficient funds fees, embarrassment, and fees charged by the payee, so it is best to make sure that you only spend what you have.
- Use cash—I guarantee that you will not be able to spend more than you have if you use cash. Stores won’t allow you to.
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- Find a progressive overdraft protection plan—In the blog post referred to earlier, I talked about ING Direct/Capital One 360 that charges a small fraction of what other banks may charge for overdrafts. Their interest based system is progressive and very helpful to have. Look for banks that offer more progressive options rather than flat overdraft fees.
Rebounding from overdrafts can be an upward battle when you combine your overage and numerous fees. It appears that American consumers are still struggling to manage their money effectively and thereby to avoid these exorbitant fees. Learning to take actions to avoid overdrafts can be the best way to truly avoid these pesky bank fees.
How do you avoid bank overdrafts and non-sufficient funds fees? How much does your bank charge for such fees? Please share your bank overdraft experiences with us by commenting below.