There’s nothing quite as frustrating as taking a $35 hit for overdrawing your bank account by a buck or two. Bob Sullivan of MSNBC.com’s Red Tape Chroniclesjoined Carmen on Wednesday’s show to explain the world of overdraft fees – and what you can do to stop them.
1) "Courtesy" Overdraft
This ironically named charge comes when banks allow you to make a purchase with your debit card and then processing the payment even if you don't have enough money in your account to cover it. They consider it a courtesy to you that they didn't reject your purchase. The bank can then charge you an overdraft fee for over withdrawing from your account. This “service” is very common and most banks sign their customers up without even asking.
Solution: Tell your bank that you want to withdraw from the "courtesy overdraft" service and that they should set the overdraw amount on your account to zero. That way any debit transaction that would put the account on red would be rejected. Better to be embarrassed at the register then giving the bank more of your hard-earned money, right?
2) High Low Check Processing
This is when the bank will change the order in which debits and deposits clear your account. They will clear the higher checks and purchases first, which can trigger extra overdraft fees.
A select number of merchants (car rentals, gas, hotels) will put a hold on your account for more than your purchase. For example, a gas station will put a hold on your card for $75 even if you only get $10 worth of gas, and the bank will consider those funds unavailable for as long as the hold stays (1-3 days). Essentially, the money is in limbo and can lower your available balance and thus put you at risk for further overdraft fees.
Solution: Use credit cards for purchases that put holds on your account or use a line of credit.
4) Overdraft x2
If you fail to promptly pay back the bank's overdraft, they are very likely to charge you another fee. (Example: SunTrust bank adds on another $35 after 7 days of not paying, U.S. Bank will charge you $8 a day for until the funds are repaid in full.)
Solution: Link your bank account to your savings account or credit card so the bank takes the funds from there rather than hitting you with an overdraft.