Recently, Wells Fargo Bank announced it was eliminating bank fees on customer overdrafts of $5 or less and would limit the number of overdraft fees charged to just (!) four a day. In making this policy change, Wells Fargo was following a trend already established by several other major banks in the area of overdraft fee reform.
Even with these changes, Wells Fargo and other banks still stand to make plenty by “dinging” customers $25 or more whenever their withdrawals exceed their deposits. What was originally marketed as a “convenience” to customers to prevent “bouncing” checks has turned into a $29 billion-a-year cash cow for the consumer banking industry. With the majority of overdrafts already exceeding $5, don’t look for the banks’ bottom lines to start hurting any time soon.
So what can you do to protect yourself from these fees? Here are a few tips:
• Make your deposits as early in the day as possible. One trick banks use to “encourage” overdrafts is to count all debits before they register deposits. So, for example, if you have $50 in the bank, put $75 on your debit card and then deposit $100, the bank will register a $25 overdraft before crediting the $100, leaving you with a positive balance of $75. The best way to avoid this trap is to make your deposits well before the end of the banking day—usually 4:00 p.m.—so that your deposit will be automatically registered and added to your account balance.
• Always leave a “cushion” in your balance. If you constantly find yourself going a few dollars in debt, triggering expensive overdraft fees, put $100 or $200 in your account and leave it there. When you see your balance dip below that amount, simply stop spending money until your next deposit. You’ll need to watch your account activity daily (via online banking) and pace your spending carefully so you don’t routinely end up with “too much month left at the end of the money.”
• Link your debit card to a bank credit card or savings account. Many banks allow you to dip into a savings account or transfer debt to a credit card rather than incur overdraft fees. Although there is often a fee associated whenever such an automatic redirection of funds occurs, it’s usually far less than a standard overdraft fee. Note: If you’re using a savings account as a financial back-up source, make sure you have enough money in that account to cover checking account overdrafts or you’ll be right back where you started.
• Opt out of overdraft protection altogether. Although overdraft protection has been marketed as a “service” to keep you out of trouble, it may actually be doing just the opposite. If you decline the service, you may find yourself more aware of your financial standing day-to-day and be more conservative with your spending. If your account hits a zero balance, your debit card will simply be declined when you try to use it. Note: Be careful when writing checks if you don’t have overdraft protection. “Bouncing” checks can prove even more expensive than simple overdraft fees and can ultimately “ding” your credit rating.
