Have you overdrawn your checking account before? You log into your checking account online and see big red numbers with a negative sign. It’s your account balance and you’ve overdrawn! But you’re a good money manager, right? You have your finances in order. How could this have happened?
No one really wants to be in this particular situation, especially, since most banks charge fees for every transaction overdrawn. Ouch! You make such a mistake and the bank will make you pay for it.
And pay you will. Bank of America currently charges $35 per transaction overdrawn with a limit of four per day. That could mean you could pay the bank up to $140 per day.
So, how do most people overdraw? I think there are probably 4 common ways to overdraw your checking account.
4 Ways to overdraw your bank account
1. You don’t talk about money, or forget to talk about money with your spouse.
Married couples should talk about money and their spending decisions each week. This becomes even more important when you have a joint checking account. If you’re not talking, one person may spend money without the other knowing and before you know it, you’ve overdrawn.
2. You use both a credit card and debit card to make purchases.
If you’re switching back and forth between using a debit and credit card it’s easy to make a mistake and use the wrong card when in a hurry. Some people you use a credit card to pay for things in the first half of the month and typically pay it off in the second half after receiving another paycheck.
If you do use a credit card and then pay it off each month, I recommend picking the budget categories the credit card will be used for and not mixing and matching across categories.
3. You ignore your spending.
This one is obvious and probably the most common. If you’re spending without a plan and not managing your cash flow each month you’re bound to spend more than you have. Creating a budget is critical to keeping your finances in order.
4. Don’t track your spending.
Perhaps you don’t exactly ignore your spending, but you’re not exactly tracking it either. A good way to do this is either by writing down transactions in a not pad or spending form. A more common way that can save time is using budgeting software.
So, there you have it, 4 common ways to overdraw. So, what do you do if you overdraw your checking account?
What to do if you overdraw
So, maybe one of the above four situations is you. What do you do now and how do you quickly avoid $140 per day (remember, B of A charges $35 per transaction overdrawn up to 4 per day)? Consider these tips to correct the situation. Note: this approach assumes this is not a regular reoccurring issue for you.
1. Deposit cash as soon as possible
If you have the cash, or it’s in a savings account, make sure you get a deposit into the account to bring your balance back to a positive amount immediately.
Note: you don’t want to be in a situation where you have to wait a few days to transfer money from your savings account. If you have savings at another institution you need to be able to get that money out of an ATM ASAP. About the only way to do that is to have another checking account you can quickly transfer money from your savings to checking. This is a common situation for those who have savings in an online high-yield savings account.
2. Contact customer service
Don’t delay. Contact customer service as soon as possible. Contact customer service immediately and explain you have deposited money in the account. Try to do this all in the same morning to show you’re on top of your mistake and trying to correct it.
3. Humble yourself
Humble yourself and ask for help. Explain you made a mistake and simply ask “would you please help me by removing these overdraft fees.” The key here is making sure the person understands you made a mistake and that you now need help. Don’t point your finger back to the bank. Stay level headed, humble and kind and very often, the fees will be removed.
4. Be Persistent
Be persistent in working your issue. If someone in customer services doesn’t remove your fees, kindly ask to speak to a supervisor. Then, explain the story again asking the supervisor for help.
You have a few remaining options if the supervisor is unable or unwilling to help. First, you can call back and speak to someone else. Second, you can make a visit to your local bank (if possible) and speak to someone in person. Most of the time, with this persistence, you’ll be able to get your fees credited to your account.
Other preventive measures to avoid overdrawing
1. Overdraft protection services
Protect yourself with overdraft protection services. Bank of America offers over draft protection through a savings account, credit card or line of credit. Make sure you understand the agreement as transfers or other fees may apply.
2. Opt-out of overdraft protection.
Many customers don’t realize when they open their account that banks will let you overdraw by default, but charge a fee (usually around $30) per transaction. Starting in October of last year Bank of America changed its policy. They stopped charging customers who overdraw their accounts by less than $10 per day. They also limited the number of overdraft fees to four per day which are still $35 per overdraft. But, you have to tell the bank you want to opt-out of overdraft protection.
3. Keep extra money in your account
The final option is keep extra or hidden money in your account. Deposit a $100 but don’t record the transaction. In other words, forget the money is there and use it as a safe guard against overdraft mistakes.
Final thoughts
The most important thing to keep in mind in overdrawing your checking account is that it’s you’re fault. Personally, I think it’s a little shady for banks to charge the fees (especially $35) and that people have to choose to opt-out. But remember, it’s your responsibility as the money manager to insure overdrawing doesn’t occur, so the fees can be avoided without excuse.
{ 9 comments… read them below or add one }
You make some good points! You are right, ultimately it is our fault. You also mentioned the need to be persistent. This is right on. If you want to get some good tips on negotiating things like fees and high prices read the book “getting to yes.” I have advised many people, and I have done this myself, to call all the companies that you pay money to. Just ask them to lower rates and reduce fees, they may say not, but they may say YES. Bank of America is really good concerning this. I sometimes wonder if they add the fees just so it gives them a chance to forgive the debt and appear merciful, ha-ha.
Overall, don’t beat yourself up for being overdrawn, life can get crazy at times, just have some savings to cover it. And when I say savings, I don’t mean the money you are using for school or a family vacation, I am talking about an emergency fund that you put aside and forget about until an emergency pops up, like being overdrawn.
Like you mentioned, call the bank and talk to someone. If you immediately take steps to solved the problem, and stay calm, it can be fairly easy to get some help. I’ve seen overdraft charges dropped, especially for those who rarely make such mistakes.
Mis-communication often seems to be the problem, from what I’ve experienced. Two people with access to a single account have to keep each other informed as to their actions, or problems can ensue.
Great tips and practical advice. Thanks!
I have overdrawn both my business and personal accounts at different times.
When that happens,the fault is mine, as I find most likely I have forgotten to
post in some debits to my account,resulting in an overdraft situation.I find that
some banks will work with a customer,and some banks will not.The degree of
politeness,does not seem to make a big difference here.I always try to keep on
top of these things,but running a small business leaves me pressed to pay as close attention,to my accounts as I should.What helps is now I review my on-line banking activity,on a daily basis.That helps me spot a problem,or a
potential problem much more quickly.Trying to reconcile a busy,working
account on a once a month or even once a week basis,doesn’t work for me.
In this age of instant debit card transactions,I find I need to focus much more
closely on my activity.Another benefit of monitoring my accounts daily,is
that I am much less likely to get hit with fraud or identity theft,and that is
worth a lot,in terms of my peace of mind.Finally,I really feel strongly,that
wherever you bank,it really is a good idea,to know your bank manager,and
have a good working relationship with that person.It is often times just not
possible for your bank teller,or call center rep,to make decisions concerning
overdraft fees.A bank manager has the kind of authority required,to help
with problems like overdrafts.
Being a person to the bank is key. Be real, tell them what’s going on in your life. You might have to put your ego aside a bit to get some results.
Also BofA just changed their policy. They just announced that overdraft will be an opt-in service instead of an opt-out service (to comply with new credit card act). This means that if you try to do a transaction without the funds it will be denied unless you opt-in and take the fee. Also, they’re removing the less than $10 thing. I don’t know about the 4 per day though, I haven’t seen anything on that.
you may find this tool useful.
http://www.bbt.com/Calculators/CheckBook.html
I’ve actually had this happen to me on more than one occasion. I found that it had a lot to do with a detachment to my money. I was using my debit card for most purchases (rarely did I use a credit card, but a debit card feels a lot like a credit card sometimes) and my paycheck was on direct deposit. I rarely handled cash and I never went to the bank and because my checks were being directly deposited I knew “I always have money in the bank” – which I guess goes along with the point of not tracking spending – because I wasn’t. I was swiping my card like there was an endless barrel of money on the other end. I never thought of asking the bank to drop overdraft fees I figured that was a no-no, but I’ll keep that in my hat. Not that I plan on having that happen again.
Great insight and comments from everyone! Thanks for commenting and sharing your thoughts and experience.
I think Bill has a great point about tracking spending each day. Even with personal accounts this can be helpful. I know from past experience, trying to reconcile spending at the end of each week can prove to be a monumental task sometimes.
I use ingdirect.com for all my banking, and they have a fantastic overdraft policy for their orange checking accounts: rather than pay a flat fee, they charge interest instead. What does this mean? The smaller the amount over drafted and the more quickly it is brought positive, the less you have to pay. The last time I accidentally over drafted (I forgot about my insurance being auto-deducted), I paid a grand total of three cents. That’s .03 people! And since it’s an interest bearing checking account, i ended up more than breaking even anyway. The only downside to this is that when you open the account it does hit your credit since they consider this a line of credit. Personally, I think it’s totally worth it! I no longer worry about over drafting, because paying a few cents is nothing compared to late charges on my bills. If you’re interested in opening an account (it’s super easy and secure), a referral from someone who already has an account will get you a $25 bonus if you open the account with at least $250. I’d be happy to send anyone a referral to get this bonus, just comment back with your email address. btw ingdirect isn’t paying me to say all this stuff, I just really love banking with them and i want to share the good news! note: i am not saying that over drafting is always the solution (you should track your spending!); but accidents happen and when they do, wouldn’t you rather pay less for them?
Just yesterday I logged on to my checking account online and, for the first time in my life, I found horrid red numbers staring back at me. $12.39 to be exact. I went into a state of shock. In over 40 years of having checking accounts, I had never been overdrawn. I did not understand how this could happen. Since I pay for everything with my check card, I was of the impression that something like this would be avoided by my card being declined if there were insufficient funds. What a rude awakening! I had no idea that my bank would allow overdraft “protection” by processing the two transactions that put my account into the negative. I thought “overdraft protection” was something you opted into if you had a savings account or credit card to access in the event of insufficient funds. After all, I OPT IN for medical and life insurance “protection”, I OPT IN for product warranty protection. Anytime there is a cost for “protection”, it is an OPT IN choice, not something that is forced upon the customer.
I immediately phoned my bank’s customer service 800 number. Since I had a direct deposit pending for processing at Midnight that night, they informed me that although they could not guarantee it, there was a possibility that the $35 fee would not process before my deposit. I also told them that I wanted to opt out of any overdraft protection. Although they agreed to do so, they stated that it would not take effect until August 15th when the law goes into effect. (I take from that comment that my bank, against the customer’s express wishes, will continue to grab every penny they can from customers.) When I checked my account this morning there was not one $35 fee, but TWO! That’s $70 out of my account that I cannot afford, unless I choose to go without food and gas for the next two weeks. Since my employer recently saw fit to reduce employees’ pay by 10% and increase insurance premiums by 100%, there is now just enough to squeak by. I do not live beyond my means at all but, unfortunately, the fullest extent of the pay cuts has now been felt. Hence, the overdrawn account. I will be contacting my local branch office to speak with the manager, who knows me well. I cannot imagine that he would not waive these two $35 fees for a loyal customer of 20+ years, who has had two car loans with them (both paid on time and paid off early) and has never, ever been overdrawn on an account. I truly wish I had known that my bank would process transactions that sent the account into the red. If they do not waive these fees, I will find another bank and close my account with them.