Avoiding Overdraft and Bounced Check Fees
Have you ever been hit by a hefty charge for accidentally withdrawing
more money than is in your checking account? These fees can be quite high,
so the Iowa Society of Certified Public Accountants advises that you
understand how they work and how to avoid them.
The Nuts and Bolts
When you try to withdraw more money than you have in your account, the bank
has the option to refuse that withdrawal, which they do when they return a
“bounced” check for insufficient funds and charge you a bounced check fee.
They may also allow the transaction and charge you a fee for the overdraft.
This can happen if you write a check for more money than is in your account
or if you make a withdrawal using an ATM machine or debit card for an amount
in excess of your checking balance. You might also be charged a fee if an
automatic or electronic payment puts your account into overdraft status.
When you open your account, find out about your bank’s policy so that you
are not taken by surprise later.
Expensive Fees
Why is it important to be informed? A large overdraft fee can turn any
purchase into an extremely expensive proposition. Let’s say you use your
debit card to buy a sandwich for $5. Unfortunately, your funds are very low,
and there’s not enough in the account to cover the purchase. If your bank
charges a $20 overdraft fee, then you end up paying $25 for that sandwich.
Keep Your Records up to Date
It’s clear, then, why it’s so important to understand your bank’s policy and
avoid these fees. Begin by recording all your checks, debit card purchases,
and ATM withdrawals accurately and quickly so you always have a clear idea
of how much money is in your account. If you get information from the bank
about your current balance, remember that some checks or automatic payments
may not have cleared yet. If you withdraw most of your current balance now,
you may be hit with an overdraft fee when outstanding checks or payments are
cleared. Of course, you’ll also want to check your account statement when
you receive it from the bank each month to see how you really stand or to
ensure no errors have been made.
Look for Links
Find out if you have less expensive options for protecting yourself against
overdraft charges. For example, the bank may allow you to link your checking
account with your savings account or a credit card. If you withdraw more
than you have, the bank takes the money from savings or charges it to your
credit card instead of slapping you with a large overdraft fee. Some banks
also offer a line of credit that covers any overdrafts. The bank many charge
you a transfer or other fee for these transactions, but they are usually
much lower than overdraft or bounced check charges.
Avoid the Bounce
It’s important to bear in mind, too, that even if you have overdraft
protection, your bank may not always honor a check or transaction for an
amount that is higher than your current balance, depending on the size or
circumstances of the withdrawal. If it does refuse a check or transaction
for insufficient funds, not only will your bank hit you with a high charge,
but, in many cases, you will have to pay a bounced check fee to the intended
check recipient.
Consult Your CPA
Unexpected fees and hidden charges can make it difficult to manage your
money. When you have questions about handling your finances, remember that
your CPA can help. Turn to him or her with all your family’s financial
questions. If you are looking for a CPA, go to
www.findanIowaCPA.com.
