Avoiding Overdraft Fees Means Choosing the Right Checking Account
September 24, 2009
Avoid Overdraft Fees Via Checking Account Choice
Overdraft fees related to your checking account can feel like a slap in the face. You're a good customer at the bank, but occasionally you run a little close to the line. You have other money in savings accounts, money market accounts, or CDs--at the same bank. But the bank still lets you overdraft your checking account.
To the tune of $35.
If overdraft fees really irritate you, consider your options:
1. Change Banks
Many smaller banks or credit unions are less onerous in their overdraft fee structures. Although there is no proof that the practice is widespread, there have been documented cases of banks purposefully maximizing overdraft fees. It is even alleged that whole technology systems exist to maximize overdraft fees.
By timing transactions in a way that increases the likelihood of overdraft fees--for instance, running a debit immediately but keeping deposits in the "pending" category--banks do have the power to maximize overdraft fees.
However, you have power also--to change banks if you are concerned that fee maximization is occurring.
2. Connect Your Checking Account to a Savings Account
Typically, overdraft protection, and thus overdraft fees, are the default settings on checking accounts. Again, however, if you want to change that, you can.
One option is to link your checking account directly to your savings account at one bank. This way, if your checking account goes negative, your savings account comes to the rescue, automatically.
There may be a fee associated with this service at some banks, but it shouldn't be expensive.
3. Credit Card Backup
Another option, if you want the bank to do something other than call in overdraft protection should your checking account go negative, is to connect your checking account to a credit card. This can be a double-edged sword, of course, if you leave balances on your credit card at 18% or more.
But if you just want the protection, and don't plan on carrying a balance, connecting your checking account to a credit card can be a good choice.
Find a Bank That Respects Your Desire to Never Pay an Overdraft Fee
If you are determined to never pay an overdraft fee, the easiest way to accomplish your end is obviously to never overdraft your checking account. But, as shown above, there are concrete actions other than the obvious one to cover yourself if your checking account does in fact go below zero.
Bank selection is the key aspect of this discussion. If you do feel like an overdraft fee is a slap in the face, then find a bank that doesn't make a habit of slapping its customers in the face. Interview banks about what they can do to help you never pay an overdraft fee.
Especially if you have good credit and measurable financial needs, banks will fight for your checking account. Might as well make them fight for your checking account on your terms. If no overdraft fees is the main term you desire, find a bank that will accommodate that desire.
Source:
How Do Banks Maximize Overdraft Fees? Baron and Budd: http://baronandbudd.com/legal_services/classactions/bank_overdraft_fees/how_banks_maximize_overdraft_fees
Ron Lieber • Preventing Fees From Piling Up • Sep 08, 2009 • NY Times: http://www.nytimes.com/2009/09/09/your-money/credit-and-debit-cards/09debitside.html
