Wasting money makes me sick. Like many recovering addicts, I’m super excitable about others falling prey to similar evils. I used to toss money by the handfuls away in big juicy stacks, never mindful of prices I paid or late fees or the actual cost of anything. Really it was horrifying.
That’s why the newest report on bank overdraft fee profits released this week turns my stomach. Literally. Been there, done that. Once, when our family business was in the throes of fiscal ruin, we were overdrawn more than our monthly total income. Yeah. I’ve paid my dues to banks. This process didn’t cease until I gained a nest egg in savings. I suspect I could have bought a good used car in what I’ve personally paid in overdrafts in my life time.
Here’s what the report according to MSN Money said:
Banks made 35% more money off overdraft fees in 2008 than they did just two years earlier, according to a report released Tuesday by the Center for Responsible Lending.
That’s no accident, the watchdog group says.
“Banks and credit unions have become so sophisticated in driving up overdrafts that Americans now pay more in overdraft fees every year than they do for books, cereal, or fresh vegetables,” said CRL senior researcher Leslie Parrish.
Banks raked in $23.7 billion last year just from overdraft-protection fees, the report found, and an additional $10 billion from nonsufficient-funds fees.
Overdraft fees differ from old-fashioned bounced-check fees. Banks used to reject a check or debit transaction if the account had insufficient funds, then hit the account owner with a fee.
But now most bank customers are enrolled in overdraft-protection plans — automatically, CRL says — in which overdrafts are paid and the owner is assessed a fee, which it said averages $34 for each overdraft.
What’s worse, the Center for Responsible Lending says, the most common trigger (44%) is a debit-card transaction of just a few dollars that virtually all bank customers would prefer be rejected.
In response, many banks are reducing the amount of daily overdraft fees and restructuring this area for consumers. It is up to banks to limit fees and be fiscally cautious with their members. You should do your own safeguarding of your money, though. It’s really not up to banks to watch our spending.
Here are some tips to avoid paying banks your hard earned money:
- Nix overdraft protection. Tell your bank you want out of overdraft protection. If they won’t let you out of the program- shop around, my friends. In this economy, the consumer does still hold a few cards. Find another bank or threaten to close your account as a means of negotiating.
- Establish your own cushion. Some experts say a hundred bucks will suffice. In my world, that wasn’t enough. I like a $200 surplus, because there is virtually no emergency that will be more. That might be a stretch for a lot of folks. It has been on my budget for many years. However you can, achieve and maintain additional funds in your checking account.
- Balance your account: It may sound awfully anal, but I call my bank every morning to get a balance. I make a ton of transactions. I shop online, pay bills via debit transactions and have income coming in via auto-transfers. I catch mistakes this way on a 30 second call. Recently, a medical bill I’m on the slow boat to China route of paying off monthly, made not one, but TWO withdrawals out of my account a week apart. It didn’t over draw me then. Had I not caught it, the results might not have been so pleasant later in the month. If you don’t want to call every day, at the least balance once a week.
- Shop around: Five years ago, I made the switch to a credit union. I’ve never looked back at traditional banks since then. Credit Union rates, even according to MSN’s report, are usually lower.
- Dispute, negotiate, or beg: If you do become over drawn, throw yourself on the mercy of the court and try to negotiate the fees. Sometimes you’ll find a bank that will work with you. (This is more likely with smaller banks where the policies do not outnumber the employees). I’ve shaved off a few dollars this way.
- Pay overdraft fees ASAP: When you become overdrawn, your account may have added fees. In most cases, these will keep on accruing and gaining charges even if you don’t have any other transactions. If you have to temporarily borrow interest free money from a friend or a family member to stick in your account to bring it current, it’s typically worth it.
- Check bounced? If a check does get returned, immediately contact the payee or ask your bank for advice. In some instances, banks automatically send back the check twice. This means you’ll need to know how to pay that check off. Keep the money in the bank and wait for it to be re-deposited a second time? Withdraw it and take cash or money order to the business originally presented? Doing some follow up, however embarrassing, can save you ugly consequences later. Writing a bad check is illegal, after all. You can face prosecutor’s fees and additional issues if you are not pro-active.