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Archive for Monday, November 23, 2009

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Preventing overdraft charges

Don’t let bank fees pile up inadvertently

November 23, 2009

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It used to be you could balance your checkbook, monitor your ledger and not have to worry about overdrawing your checking account. But the widespread use of debit cards, combined with new fees, have led to a surge in overdraft fees that make it difficult to ascertain your exact balance.

Banks and credit unions collected nearly $24 billion in overdraft fees last year — up more than 35 percent from just two years ago.

You can reduce your chance of receiving those alarming overdraft-notification letters by arming yourself with a little knowledge to regain control of your checking account. Here are some ways to protect yourself from debit-card overdraft fees.

• Learn your bank’s policies. Your bank will continue to withdraw money, even if you don’t have sufficient funds. Your debit card use may be approved even when there isn’t money in your account. Thirty-five percent of banks and credit union let customers overdraw their accounts at ATMs or with debit cards, and they charge anywhere from $20 to $35.

Large banks like to process the largest charge they receive first, despite the order in which it was purchased. So if you make two charges for lattes before you buy a flat-screen television, the bank will likely process the television charge first and you’ll be hit with two overdraft fees for the coffees.

• Shop around for the best overdraft policies and fees. In general, you’ll find smaller banks and credit unions have lower fees and fairer policies, but don’t ignore the larger chains. Bank of America recently announced it would not charge overdraft fees on more than four items per day. Nor would it charge fees on an account overdrawn by less than $10 a day.

• Danger lurks at a point-of-sale terminal. Every time you make a purchase at a store with your debit card and it’s approved at checkout, another screen pops up asking if you’d like cash back. This makes it handy to grab some cash without paying any ATM fees, but by clicking on that “Yes” button, you could be overdrawing funds without knowing. These POS terminals don’t indicate your bank balance and won’t signal if you’re about to pull out too much money. According to The Center for Responsible Lending, these POS transactions are the leading cause of overdrafts, generating about 35 percent of such fees.

• Opt out of overdraft protection. Most banks automatically enroll you in some type of overdraft-protection program without being asked. Congress and the Federal Reserve Board are now working to make changes in this policy, and such banks as Chase and Bank of America have revised their policies to require customers opt in when they open an account. That doesn’t help for those already enrolled, however.

If you find you’re racking up a formidable amount of money in overdraft fees, you can opt out of the program and have your charges denied if you overdraw. Or you might have your checking account linked to your savings account or a line of credit. You’ll have to pay interest on the line of credit, but it likely will total less than any overdraft fees. You then can deposit money into your account quickly to cover the shortfall and avoid further interest charges.

• Watch out for “holds.” Occasionally, when you make a purchase with a debit card, a vendor will place a “hold” on you account to ensure you don’t spend that money before the bank processes the charge. However, that hold may be placed for more than you actually spent, particularly when the final bill is unclear, such as charges at the gas pump or a hotel.

These holds can’t be placed for more than three days, but that’s more than enough time to create a waterfall of cascading overdraft fees, particularly when there’s no way for you to know that a hold has been placed.

You can avoid such holds by using your debit card’s PIN transaction fee for purchases, rather than the signature feature. A PIN transaction withdraws money directly from your account, so holds can’t be placed.

• Beg. Don’t assume a pile of overdraft notices means an automatic loss. Call your bank to see if they’re willing to cut you a deal, particularly if it isn’t a common occurrence. If you’re a good customer, banks are more likely to be interested in keeping your business and will waive the fees. If you meet with a stone-wall refusal, consider taking your business elsewhere.

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