Your bank charging an overdraft fee is similar to you getting punched in the stomach, then getting robbed. It’s something you didn’t really want to begin with, but afterwards you’re even worse off.
Everyone loves their debit cards, but if you’re a broke college student or a dude living paycheck to paycheck, you have to be careful with these overdraft charges.
There is hope, though. Carmen Wong Ulrich, CNBC’s new personal finance show host, interviewed a bank fees expert yesterday. I was really surprised at all the different ways banks are able to swindle you out of some extra cash. Luckily, there were some simple solutions to each of these ripoffs. Here’s 4 that will really help you out:
1.) "Courtesy" Overdraft – This is the one where you buy something using a debit card, but you don’t have enough in your account to cover the purchase. Rather than denying the charge, the bank will gladly pay it for you, and then charge you anywhere upwards of $40 for that ‘courtesy’ afterwards.
Solution – Luckily, you can just tell your bank to set your ‘overdraw amount’ to zero and deny your card anytime your account can’t cover it. Throw in a nice "F*@# off" for good measure.
2.) "High Low" Check Processing – Here’s another clever ploy where the banks decide to clear your purchases and debits before they put through your deposits. So, if you went on a little booze buying spree right after depositing your paycheck, you might be rudely surprised with a hefty overdraft fee when you thought you had it covered.
Solution – The best thing to do for this is raise your awareness. Don’t spend on anything until your deposited funds show up under ‘available funds’, meaning the check has cleared. It sounds simple enough, but it might be hard to stick if you’re not a proficient online banker. Also, as is the case for many of these problems, maybe just try and have more money in general? That always helps.
3.) "Holds" On Your Account – You may not know this, but gas stations will put a hold of up to $75 on your account funds every time you make a purchase. If you’re cheapskate and decide to only throw a few bucks worth of gas into your car, the station will actually charge you $75 – $150 until your purchase clears. If you don’t have the necessary funds for the "hold", you’ll be charged an overdraft fee by your bank. Sucks, doesn’t it? It’s borderline illegal, but somehow gas station and other big ticket items are able to do this.
Solution – Carmen’s expert recommends just using credit cards for gas purchases and paying them off immediately. Especially if you’re teetering on the ‘insufficient funds’ line.
4.) The Dreaded "Double Overdraft" – Let’s say you got one of these nasty overdraft fees, but couldn’t pay it off right away. That seems logical, right, because obviously you’re having problems with insufficient funds, but the bank doesn’t really care about your problems. Some banks will charge an additional fee for each passing day the overdraft fee isn’t paid in full. Other banks will slap on another fee after 7 days of non-payment.
Solution – The simplest way to avoid this is to have your debit card/bank account linked to you savings account and credit card. Rather than racking up fees without you becoming the wiser, your bank can just dip into your other funds to get their blood money.
Any other suggestions or "creative fees" you’ve encountered? Let us know in the comments.
Check out [CNBC: Say Goodbye To Overdraft Fees Forever, August 27, 2008] for the full interview and video.