How To Avoid Unnecessary Bank Fees.

With the current economic crisis in which we now find ourselves, look for your local bank to be increasing fees for services. In fact, I recently spoke with a banker friend of mine and he said that with the new FDIC insured deposit limit being increased to $250,000, the banks’ costs of that insurance will nearly double. The only way for them to get that money back is to increase their fees. With that in mind, here are a few tips to help you avoid some of these fees.

Many of these fees come from “courtesy” services that banks offer on overdraft policies. These services allow the bank to clear your check that might otherwise bounce when you don’t have sufficient money in your account to cover the check. Worse still, many banks simply use software to handle these situations without regard to the account holders ability to pay back the overdraft and it’s associated fees. If you have teenagers with checking accounts, you probably know just what I am talking about. I have had my kids essentially borrow less than a dollar and have to pay over $100 in fees for the privilege.

Here are some of the ways your bank might trip you up with pricey overdrafts:

Debit and ATM cards

Many people mistakenly believe that using a debit card will prevent them from overdrawing their account. In fact, debit card use triggers 46% of all overdrafts according to the Center For Responsible Lending. Most banks will allow the debits to go through even when no money is available in the account.

How do you avoid this? Ask the bank to set the debit-overdraw limit on your account to zero. Transactions that would put your account in the red will now be rejected.

Reordered Debits and Deposits

Banks often change the order in which debits and deposits occur in your account. Some banks pay daily transactions in order from highest to lowest, while others use any order they choose. Banks will try to justify these practices as a way to ensure the most important debits get paid but in fact this is simply a way to increase the overdrafts. Let me give you an example. Assume you began your day with $200 in your account. You get a coffee ($5) and then gas ($50), then purchase an mp3 player ($130) and then get lunch ($8) and finally stop for groceries on the way home ($35). If these are processed chronologically, only the last item will trigger an overdraft. But taken from largest to smallest triggers 3 overdrafts. Voila, more money for the bank.

How do you avoid this? Buffer your account with an extra $100 or so that you never dip in to.

Time Is Of The Essence

If your bank pays a courtesy overdraft, then they have essentially loaned you money. You should expect the interest rate on this type of loan to be very high. Worse still, they can add processing fees as more time goes by. Some banks add another $35 after 7 days on each overdraft! The worst part of all is that you may not know about it until your statement comes in at the end of the month. This is how my teenager spent over $100 to borrow 65 cents one time.

How do you avoid this? Set up another line of credit from a savings account to immediately pay off any courtesy overdrafts. Also, if possible, ask your bank of the fastest way they can notify you of an overdraft and make sure your agreement stipulates that form of notification.

They Keep On Lending

Only 30% of the major banks have a limit of courtesy overdrafts. This means that many small items can keep on upping the ante for you as they come in. Worse still, many banks have a tiered system that increases the fees for each additional overdraft. You can get into some pretty serious money pretty quickly over one small mistake.

How do you avoid this? If the cause of the problem is one mistake, go to the bank and ask them to waive the fees. If you can show that it all evolved from one item and that your account has not had overdraft issues in the past, you may be successful.

At Clinard Insurance Group in Winston Salem, NC, we help thousands of people living in NC with their personal insurance needs such as auto insurance and home insurance as well as their business insurance and life insurance needs. We are an independent agency and our trained professional agents will take the time to listen to your needs and then find you the protection you want and need at the lowest possible price. Give us a call, toll free, at 877-687-7557 or visit us on the web at www.ClinardInsurance.com.

The source information for this article was pulled from the Clinard Insurance Group lifestyle tips and tricks blog.