Protect Yourself From Overdraft and Bounced Check Fees
How do overdrafts and bounced checks happen?
How can you avoid overdraft and bounced-check fees?
What are "courtesy overdraft-protection," or "bounce coverage," plans?
How much do courtesy overdraft-protection, or bounce coverage, plans cost?
What are some other ways to cover overdrafts?
What do you need to know about courtesy overdraft-protection, or bounce coverage, plans?
What should you do if you have a problem or complaint about courtesy overdraft-protection, or bounce coverage, plans?
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How do overdrafts and bounced
checks happen?
When you
- write a check
- use your debit card to make a
purchase, or
make an automatic bill payment or
other electronic payment
- for more than the amount in your
checking account, you overdraw your account. Your bank (or your
savings and loan or credit union) has the choice to either pay the amount
or not. If it pays even though you don’t have the money in your account,
you may be charged an "overdraft" fee. If your bank returns your check
without paying it, you may be charged a "bounced-check," or "nonsufficient
funds," fee. And the person or company that you wrote the check to--for
example, a store, your landlord, or the phone company--may charge you a
"returned-check" fee in addition to the fee your bank charges
you.
How can you avoid overdraft and
bounced-check fees?
The best way to avoid overdraft and bounced-check fees
is to manage your account so you don’t overdraw it.
- Keep track of how much money you have
in your checking account by keeping your account register
up-to-date. Record all checks when you write them and other
transactions when you make them. And don’t forget to subtract any
fees.
- Pay special attention to your
electronic transactions. Record your ATM withdrawals and fees,
debit card purchases, and online payments.
- Don’t forget about automatic bill
payments you may have set up for utilities, insurance, or loan
payments.
- Keep an eye on your account
balance. Remember that some checks and automatic payments may not
have cleared yet.
- Review your account statements each
month. Between statements, you can find out which payments have
cleared and check your balance by calling your bank or by checking online
or at an ATM. Be sure to find out the actual amount in your account--your
account balance not including any funds available to you through "courtesy
overdraft-protection," or "bounce coverage," plans.
Sometimes mistakes happen. If you do overdraw your
account, deposit money into the account as soon as possible to cover the
overdraft amount plus any fees and daily charges from your bank.
Depositing money into your account can help you avoid additional
overdrafts and fees.
What are "courtesy
overdraft-protection," or "bounce coverage," plans?
Many banks (as well as savings and loans and credit
unions) offer "courtesy overdraft-protection," or "bounce coverage," plans
so that your checks do not bounce and your ATM and debit card transactions
go through. With these plans, you’ll still pay an overdraft fee or a
bounce coverage fee to the bank for each item. But you will avoid the
merchant’s returned-check fee and will stay in good standing with the
people you do business with.
How much do courtesy
overdraft-protection, or bounce coverage, plans cost?
Plans vary, but most banks charge a flat fee (often $20 to
$30) for each item they cover. And many set a dollar limit on the
total amount your account may be overdrawn at any one time. For example,
the bank might cover overdrafts up to a total of $300, including
all the fees. In addition, some banks charge a daily fee--say $5 a
day--for every day your account is overdrawn.
Example: Suppose you forgot that
you had only $15 in your account and wrote a check for $25, used an ATM to
get $40 cash, and used your debit card to buy $30 worth of groceries. In
these 3 transactions you’ve spent a total of $95--and overdrawn your
account by $80 ($95 - $15 = $80). How much will your forgetfulness cost
you?
If you have a courtesy overdraft-protection plan, your
bank may decide to cover all 3 transactions. And each of the 3 overdrafts
will trigger a fee. You will owe your bank the $80 that you spent even
though it wasn’t in your account, plus the 3 overdraft fees. If
your overdraft fee is $25 per overdraft, you will owe your bank $155: $80
+ $75 (3 x $25).
What are some other ways to cover
overdrafts?
Banks, savings and loans, and credit unions may provide
other ways of covering overdrafts that may be less expensive. Ask your
bank about these options before making your choice. You may be able
to:
Link your checking account to a
savings account you have with the bank. If you overdraw your
checking account, the bank can transfer funds from your savings account to
your checking account. Ask your bank about transfer fees.
Set up an overdraft line of credit
with the bank. You need to apply for a "line of credit" just as you
would apply for a regular loan. If you overdraw your account, the bank
will lend you the funds by using your line of credit to cover the
overdraft. You will pay interest on this loan, and there may be an annual
fee. But the overall costs may be less than the costs for courtesy
overdraft-protection plans.
Link your account to a credit card you
have with the bank. If you link your account to a credit card, any
overdraft amount becomes a cash advance on your credit card. You will
probably be charged a cash-advance fee, and interest charges on the
advance will start immediately. The cost of this option depends on the
interest rate on your credit card and how long you take to pay back the
advance.
The choice is yours. Consider these ways to cover your
overdrafts:
Ways to cover your
overdrafts |
Example of possible cost for
each overdraft* |
Good account management |
$0 |
Link to savings account |
$5 transfer fee |
Overdraft line of credit |
$15 annual fee + 12% APR |
Link to cash advance on credit card |
$3 cash-advance fee + 18% APR |
Courtesy overdraft-protection plan |
$20 to $30 |
Bounced check
|
$40 to $60 ($20 to $30 bank fee + $20 to $30 merchant
fee) |
What do you need to know about
courtesy overdraft-protection, or bounce coverage, plans?
Avoid using these plans as short-term
loans--they are costly forms of credit.
If you overdraw your account, get money back
into your account as soon as possible. Remember that you need to put
enough money back into your account to cover both the amount of
your overdraft and any bank fees.
Even if you have one of these plans, there is
no guarantee that your bank will cover your checks, ATM withdrawals, and
debit card and other electronic transactions that overdraw your
account.
Good account management is the lowest-cost way
to protect your hard-earned money. If you need overdraft protection
every now and then, ask your bank about the choices and services that are
right for you.
What should you do if you have a
problem or complaint about courtesy overdraft-protection, or bounce
coverage, plans?
If you have a complaint, first try to resolve the problem
directly with your bank, savings and loan, or credit union. If you are
unable to resolve the problem, you may want to file a complaint with one
of the state or federal agencies responsible for enforcing consumer
banking laws.
For more information contact the federal
agency responsible for regulating your
bank.
Federally chartered credit unions (those with "federal" in the name)
National Credit Union Administration
Office of External Affairs
1775 Duke Street
Alexandria, VA 22314-3428
(703) 518-6330
www.ncua.gov
State-chartered banks that are members of the Federal Reserve System:
Board of Governors of the Federal Reserve System
Division of Consumer and Community Affairs
Mail Stop 801
20th and C Streets NW
Washington, DC 20551
(202) 452-3693
www.federalreserve.gov
See How to File a Consumer Complaint about a Bank on the Board’s web site for more information.
State-chartered banks that are not members of the Federal Reserve System
Federal Deposit Insurance Corporation
Consumer Response Center
2345 Grand Boulevard, Suite 100
Kansas City, MO 64108
1 (877) 275–3342, toll-free
www.fdic.gov
For state-chartered credit unions, contact your state’s regulatory agency
National banks (banks with "national" in the name or "N.A." after the name)
Office of the Comptroller of the Currency
Customer Assistance Unit
1301 McKinney Street, Suite 3450
Houston, TX 77010
1 (800) 613-6743, toll-free
e-mail: customer.assistance@occ.treas.gov
www.occ.treas.gov
Federal savings associations and some state savings associations
Office of Thrift Supervision
Consumer Programs
1700 G Street NW
Washington, DC 20552
1 (800) 842-6929, toll-free
www.ots.treas.gov
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