Financial Resource

You’ve just gotten home from work and you’re going through the day’s mail just before dinner. There’s a letter from your bank. You know what it is before you open it because you recognize the packaging, it’s oh so familiar. Your bank is writing to inform you that your account is overdrawn and of the fees assessed. There’s more…

There’s a second letter, also from your bank. This one states the fact that due to unpaid fees and a “lingering” negative balance your account has been closed and your name and account info have been reported to Chexsystems.

Overdraft Item fees are usually charged when a customer writes a check or makes a withdrawal of some sort (most times with ATM, debit or check cards) that exceeds the balance in the their checking or savings account. Overdrafts could occur for any number of reasons. 

A couple of those are… Intentional short-term loan: Occurs when the account holder finds themselves short of money and knowingly makes an insufficient-funds debit. They accept the associated fees and cover the overdraft with their next deposit; Failure to maintain an accurate account register: The account holder doesn’t accurately account for activity on their account and overspends through negligence. These are some customer caused reasons for overdrafts.

However, there are overdraft fees charged to customers for causes which may not be entirely the customer’s fault. Meaning, there were no “intentional actions” on the customer’s part to provoke the OD. A couple of these reasons are… Bank fees: The bank charges a fee unexpected to the account holder, leaving insufficient funds for a subsequent debit from the same account.

Temporary Deposit Hold: A deposit made to the account can be placed on hold by the bank. This may be due to Regulation CC (which governs the placement of holds on deposited checks) or due to individual bank policies. The funds may not be immediately available and lead to overdraft fees.

Bank strategies are driving up fees, practices which are condoned by regulators, explains Kathleen Day, a spokesperson for the Center for Responsible Lending, a non-partisan research center. Regulators deem these overdrafts fees, not small loans, so charges don’t come under the Truth and Lending Act.

Banks can charge whatever fees the market will bear. In reality, consumers are in fact taking out a small loan and fees should be constrained and regulated just as in any lending arrangement, Day says.

According to The New York Times, US-based banks earned billion from consumers for debit and other card overdraft fees in 2008. One consumer paid 2 in fees for three incidental debit card purchases because his account was overdrawn, turning his café latte into a beverage costlier than many champagnes.

The banks solution to this problem of excessive fees… Overdraft Protection, which is the solution with a thousand downsides. Overdraft protection works in this manner, if your checking account runs short of available funds to cover checks you’ve written or other debits, Overdraft Protection automatically advances funds from another source i.e. savings account, line of credit or credit card. This sounds good at face value but looking deeper into it you will find “not so”.

Overdraft protection (as long as you have an alternate funding source) does insure you won’t assess overdraft fees, but the catch is you’re going to pay for it! The fees vary according to the financial institution and the type of overdraft protection you have. Regardless of factors previously stated this is still not a solution I would vie for. Why…? Overdraft protection could also prove to be very costly. This is done with the click of a button so why should it cost you anything!

Most consumers fail to recognize that they can opt out of overdraft agreements, says Robert Manning, author of Credit Card Nation. Many people don’t even know they’ll be subjected to overdraft charges so the minute a fee is triggered, go to your bank and opt out. Unlike credit cards, debit card overdraft agreements are fluid and can be terminated at any point.

This is clearly one solution to the problem but in my opinion, not the best. There are others but I won’t bore you with those… The one viable solution to combat these fees is to correctly balance your account so that its never overdrawn. However, this is most often easier said than done. Customers don’t need overdraft protection, they need overdraft prevention.

Customers need debit accounts that assure them they absolutely will not overdraw their accounts. Prepaid debit cards insure this! With prepaid debit cards you only spend what you have and nothing more. Personally I found this to be the most excellent choice to relieve one of bank fees. I don’t want them getting rich off of me anymore said one group of paneled consumers.

With most prepaid debit cards, you can do everything you could as with any bank issued debit card or checking account bt in no way going into debt. To find out more about the benefits of using prepaid debit cards as a viable checking account alternative ßclick the highlighted text.

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