Banking 101.2 - Ummm, about your overdraft...?

April 23, 2009 by Curt Siters

When I was discussing banking with my friend Matt he brought out some screen shots of the information available to customer service in regards to account overdrafts, late fees and maintenance fees (all sensitive and personal information was removed). Needless to say I was a bit shocked. He also disclosed to me some interesting information about the fees themselves.

While most people feel (perhaps rightly so) that overdraft fees are exorbitant there is a two prong reason for them to be relatively high. In no particular order they are:

1. To try to encourage you to not over draw your account, and,
2. To make the bank money.

It seems that banks make a substantial amount of money from these fees. Are you surprised? In a way I was. Businesses are in operation to make only one thing, though the method they use to do so may vary, which is to make money. Banks just make money dealing in money.

So, if you rank banks up there with oil companies, insurance companies and attorneys don't think you will get back at them by going into overdraft. Instead do it by taking steps to ensure you don't overdraw your account, pay your loans on time and understand the contract you signed with the bank (have it reviewed by an attorney and a financial planner).

If you have fallen into a bit of a rough spot, watch your money. Look at when you paydays are and when your bills are due and budget when each bill gets paid. You might be surprised that you can get your bills paid on time and in full and have some money left over.

As an experiment I created a simple MS Works spreadsheet (should work in MS Excel and Open Office) to test this out. 

When you call your bank to complain about an overdraft I need to tell you that they keep all kinds of information about your overdraft history including:

• How many times your account has been overdrawn since it opened,
• Information on the overdrafts for the last 12-18 months
• How many times the fees have been refunded or rebated
• The amounts, reasons and comments regarding any rebates

So if you have a habit of overdraft don't bother to say you never overdraft as the call center associates will know otherwise and it will make you look foolish.

If you buy something or make a payment knowing the funds are not available that is known as kiting. If you make a deposit don't count on that money being available until it actually posts to your account. Most banks will have at least a one day hold on check deposits (depending on how they have their system set up) and the funds may not be available when the merchant request comes in.

Do not, if it can be avoided, deposit money through an ATM as it can take up to six days for the deposit to be posted to your account. Six days is very rare but it can happen.

Chances are if the bank says you are overdrawn, you are. Are mistakes sometimes made? Yes. Will a bank redress its errors? Most definitely. Will they redress your errors? Most likely not as it is your responsibility to stay on top of your finances. Sometimes they will as a courtesy.

Now about that 17 cent overdraft for a $2.00 purchase. In general when a bank settles its accounts they will make sure that the largest items get paid first because they are usually the most important (mortgage payments, rent, car loans, etc) with the smallest ones paid last. So if you have one large item post to your account it is possible that the ten or so smaller ones will put you into the negative with an overdraft fee for each one.

Not all banks work this way. Some post to your account as soon as the payment is requested.

However, if you track all of your checks, debit card/ATM card uses and deposits and double check your math you should not find yourself in this position.

If you find that a deposit isn't going to post to your account when it should and you have some outstanding payments due before it does - call the person or business and ask them to hold off for a day or two as the deposit hasn't posted to your account and if it comes in your account will overdraft. My experience is that most companies will hold off a couple of days because if it comes to a point where you can't pay (because you have been paying overdraft fees) they will lose money (and they don't want to do that).

Don't be afraid to call your bank and check if payments and deposits have posted to your account. Don't be afraid to discuss fees (overdraft, maintenance, etc) and if you are having problems keeping your account in a place where you aren't charged fees do ask what your options are. Most banks will work with you to help you get what you need, and as close as possible, what you want.

Don't rely on the ATM balance or On-Line Banking balance as these could be inaccurate. For up to the minute information on what is available contact your bank. For On-Line banking talk to the bank and see if shows your current available balance. Even this is not 100% accurate as it cannot show what checks are outstanding or what card purchase have been made that the merchant has put through the card system yet.

Most important of all, do not get pissed at the call center associates as they are not the decision makers and have limited authority to do things. If you are angry at the bank, please say so and tell the associate that you aren't upset with them - a wish from my friend Matt and some of the other associates I've met.

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Curt Siters is an Independent Associate for Pre-Paid Legal Services, Inc. He is also aYoung Living Essential Oils Independent distributor and publishes articles on YourWebReference and at TheVeryEssence. He also does web work such as website design, website maintenance and SEO for websites.

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