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10 Tips to Avoid Overdraft Fees

May 17, 2010

By Barbara Marquand | Money Rates Columnist

Much attention has focused on banks' debit card overdraft fee policies and their impact on unwary checking account customers.

Avoid Overdraft Fees with These Tips

As banks prepare to meet federal overdraft fee rules that go into effect summer 2010, bank customers should focus on what you can do to minimize your overdraft fees. Follow these tips to avoid overdraft fees on your online checking account.

1. Swipe mindfully.

It's easy to lose track of debit card use. Make a point to record ATM withdrawals and debit card purchases in your check register as soon as you make them.

2. Don't forget about automatic bill payments.

You can use automatic payments to pay your bills without lifting a finger, but you still have to make the effort to keep track of them. Record the amounts before the money is transferred out of your account.

3. Reconcile your checking account weekly.

Don't wait until the monthly statement arrives to reconcile your account. Spend 10 minutes each week reviewing your account online to make sure you've recorded all your purchases, withdrawals, and deposits and that your balance is in line with what the bank reports.

4. Talk to your spouse.

Discuss the account regularly with anyone with whom you share a joint account, such as a spouse.

5. Don't float checks.

With today's electronic check processing, the float--the time between when a check is deposited or written and when the money is actually withdrawn from your account--is minimal or none. Don't write a check unless you know you have the funds immediately to cover the amount.

Bounced checks aren't covered by overdraft programs for debit cards. You'll pay double if you bounce a check--a fee to the bank and a fee to the merchant.

6. Don't post-date checks.

Post-dating checks is no better than floating checks because the other party doesn't legally have to wait to cash it, according to ChexSystems, the reporting bureau for checking account histories. You're still responsible for covering the amount even if the check is cashed earlier than the date you wrote on it.

7. Keep track of checking account fees.

Bank charges, such as monthly maintenance, ATM, and other fees, add up. Don't forget to account for these in your checking account register.

8. Wait for deposits to clear.

Electronic check processing makes funds available faster, but you'll still have to wait a bit for some deposits to clear. Make sure the deposit amount has been credited to your account before counting on the money.

9. Link your checking account to a savings account.

Ask your bank to link your checking account to your savings account for overdraft protection. Then if you do overdraw your account, money from your savings will be transferred automatically to cover it. You might have to pay a transfer fee of a few dollars for the protection, but that's still cheaper than a bounced check or debit card overdraft fee.

10. Link your checking account to a credit card or credit line.

You can also link your checking account to a credit line or a credit card for overdraft protection. Beware, though: You'll likely pay interest on the amount, and, for a credit card, a cash-advance fee also.

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