Congress Takes Aim at Overdraft Charges

One of the ways that banks make a great deal of money is through overdraft charges. When you exceed the amount of money you have in your checking account, the bank charges you an extra fee. This can be anywhere between $25 and $45 per transaction. That’s right per transaction. Consider that you have $20 in your account, and you make the following transactions:

• $15 for a book.
• $6 for coffee and a pastry.
• $3 for parking.

Now, that $6 transaction put you $1 over your limit. You will be charged, on average, $39 for that transaction. And, of course, you will also be charged another $39 for the $3 parking transaction. That means that for going $4 over what you have in your account, you are now behind $82 (the $4 plus $78 in fees). You can see how quickly this adds up. Many banks won’t start denying your debit card purchases until you have racked up around $300 or $400 in overdraft charges.

Congress considers requiring permission for overdraft fees

Just as the recently passed Credit CARD Act will require credit card companies to get your permission to allow over the limit transactions (and the accompanying bank fees), Congress is now considering requiring banks to get your permission to approve transactions that go beyond what you have in the bank.

While this might reduce a source of income for banks, it might provide help for consumers. If consumers must “opt in” to see overdraft charges, it could result in more savings for those who must transform their spending habits in order to avoid having transactions denied. Of course, there will doubtless be some who want to be able to continue spending beyond their means. But at least they will have been warned about exactly what the costs are.

Keeping track of your spending

Of course, it is much better to keep track of your spending in the first place. Remember that your debit card takes money out of your checking account. This means that you should deduct purchases made using your debit card from your check register, or enter them into your personal finance software. I keep all receipts from debit transactions in my purse, and then enter them into my personal finance software at the end of each day. This way, I keep track of how much money I have.

Having a spending plan, and sticking to it, can also help, since you will have a plan for your money, and will be less likely to over-run. Regardless of whether or not Congress passes this measure, it is vital that you take responsibility for your finances and keep track of your spending. Otherwise you will never find financial freedom.

Image source: Daylife