Overdraft Protection Costs
Probably you have experienced the case of not having enough money when the next car payment is due. You have probably taken advantage of the generous offer of your bank of helping you getting out of this situation through an overdraft protection. This means that even you don't have enough money in your account you can still write a check to cover your expenses.
Unfortunately, this kind service is supplemented with many fees that you should pay. For example, when paying back the overdraft you may be charged a $20 fee and additional $5 for every day you have been overdrawn. If you continue to use the overdraft service you will probably end up paying a huge interest on the draft limit and the accumulated fees.
Cases in which overdrawing your account may occur include:
- No-cover check
- An ATM withdrawal with not enough money in the account
- Debit card with not enough money in it
- An automatic checking account deduction with not enough money in the corresponding account
When you have not enough money in your account, but you are still trying to make payments out of it, you bank may honor your check or debit by overdrawing your account. On the other hand, the bank may reject the requested payment and return the beneficiary. As a result you will face a penalty fee for writing a check with no cover, and the business that has not received the requested from you money may further charge you a return check fee.
This is an automatic protection, which is provided by your bank, through a line of loan (credit). It protects you against checks or ATM retrievals that exceed the amount of money you have in your bank account. Under standard overdraft protection, you have agreed in advance that the amount that exceeds your holdings will be either added to your credit line or charged to your credit card. As a result, if you have written an overdrawn check, the bank will still pay it. You will not incur any penalties for the insufficient funds in your account to cover the requested amount. What is more, when signing for an overdraft protection, you are well aware beforehand with the fees and interest rates that you re going to be charged.
So, the next time you don't have enough time to pay for the good you have liked so much and you have signed for an overdraft protection with your bank, don't hesitate and do the purchase. But you should not use this service too recklessly since sooner or later you should pay this money back to the bank.
Courtesy Overdraft (also known as Bounce Protection)
When a bank offers you a courtesy overdraft you will be charged a fee for exceeding your available funds. Further more, you will be charged a daily fee for every day until you pay back the overdraft. The first fee varies from $35 to $40 per overdrawn check, whereas the latter ranges from $2 to $10 for every day until the repayment of the overdraft amount.
You should be aware of these fees, since sometimes they can be hardly recognized, since most bounce protections are presented as traditional overdraft protection.
Traditional Overdraft Protection vs. Courtesy Overdraft Protection
While under a bounce overdraft protection you are charged a fee for every overdrawn check, traditional overdraft protection does not penalize you for insufficient funds. However, under traditional overdraft protection there may be some fees for the transference from your savings account or credit card to your checking account. But, compared to the fees charged by courtesy overdraft protections they are of a sufficiently lower amount.
What's more, the traditional overdraft protection doesn't charge you the daily fee charged by bounce protection overdraft until the repayment of the overdraft is done. The first only charges an interest for the specific period.
The danger of bouncing checks without protection may occur under the courtesy overdraft protection. This is sometimes caused due to the possibility of banks not to disclose information about your true costs, since the bounce protection is characterized as neither a service nor a loan. Therefore, you are in no way guaranteed that your overdraft will be covered by the bank.
In order to protect yourself from the high fees of courtesy overdraft protection, consider the following advices:
- Take a good care of your checking account.
- Whenever you execute any automatic debits, ATM withdrawals, checks or incur bank fees, record them in your check register as soon as possible.
- Always keep a close track of your finances. Don't excessively rely on the records of the bank, since it may later receive a check you have written and still haven't recorded it in its balances. As a result you may end up overdrawing your account, without taking into consideration such checks or automatic debits.
If you are one of those people that quickly spend their salary once they have received it or even before this, then you should carefully reconsider your spending habits. Frequent overdrawing of your account only indicates that you are in a need of establishing a budget to follow and curb your compulsive spending that may be the root of the problem.
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