Be Aware of Debit Overdraft Charges

Debit cards seem like a great idea: The convenience of plastic without paying the interest associated with credit cards. And it really is convenient. I love my debit card. But you have to be careful. Miki at MAPping Company Success brought an interesting personal finance article to my attention recently. It’s an article in the New York Times about banks are increasingly relying on the fees from overdrafts on debit card purchases in order to finance their operations. And that means that you could pay between $25 and $45 per transaction if you go beyond what you have in your checking account.

The article in the New York Times offers this anecdote of one man’s problem:

Mr. Means, who is 59 and lives in Colorado, figured employees at his bank, Wells Fargo, would show some mercy since each purchase was less than $12. In addition, a deposit from a few days earlier would have covered everything had it not taken days to clear. But they would not budge.

I can sympathize. This happened to me as well. But in my case it was the bank that messed up, not getting all of the deposits from one day put through. That set off a chain reaction. My bank was kind enough to go through the process waiving some of the fees. But out of the $308 in fees, they still refused to budge on three of the transactions, amounting $117 in fees.

Of course, consumers do bear some of the blame for this. It is vital that you carefully monitor your spending and your bank account. Record debit transactions in your personal finance software or in your checkbook register. And find out when your bank allows deposits to become “available.” In some cases it can take 24 – 72 hours for your deposits to “count” toward your available funds. You might even check online to see when your deposits clear so that you are not caught paying fees.

It may seem backward for banks to allow you to exceed your funds, but when you think about the billions the banking industry makes from this, it makes good business sense. It’s up to you to keep track of how much money you actually have in your checking account.

Image source: Neil T via Flickr