Banking and Overdraft Fees

Banks use a system that debits your account from highest transaction to lowest, not in order in which they were spent as most people think. This gives the bank more reasons to charge overdraft fees. If they take out the highest transactions first, all of those little transactions that your balance would have covered are each charged overdraft fees.

Here’s how high-to-low check processing works: Say you have $50 in the bank. And suppose three checks come in on the same day: for $20, $15 and $45. The bank would clear the $45 one first. That way, it could charge you a fee, of up to $35, for each of two checks bouncing. If it had cleared the lowest-amount check first, you’d incur only one bounced-check fee.

I would say that if your bank is making money off of you by waiting for you to make a mistake or have a bad month, they’re not looking out for your best interests.

• Balance your checkbook
• Ask your bank about its order of check, debit processing
• Know deposits may take longer to clear than checks
• If you’re charged fees, ask the bank to waive them
• Read bank’s deposit agreement
• Sign up for a low-cost transfer from savings for overdrafts

Of these, I think overdraft protection is probably the most important. Linking your checking account to a savings or credit account that can absorb a mistake can be very helpful. Be aware, though, that some banks still charge for *using* overdraft protection, so you’re just reducing the amount you get charged, not eliminating it. The amount of the fee you are charged for this will easily eliminate your interest earnings for the year. (My bank charges $10.00 if they transfer funds from my savings to my checking account to cover an overdraft.)

Remember, with a customer-acquisition cost of over $350, banks want to keep you as their customer. The next time you get charged a fee by your bank, make the call! Simply tell them, “I’d like to have that removed.” Be polite, friendly and direct.

If the rep says to you, “Unfortunately, we’re not able to waive that fee. It was [some excuse about how it’s not waivable].” Don’t give up here. “No” does not mean “No” when it comes from a bank!

Try this: “Well, I see the fee here and I’d really like to get it waived. What else can you do to help me?” (Repeat your complaint and ask them how to constructively fix it.)

Always, always track your customer service calls.

So what do you do if you can’t get resolution with your bank over fees? Complain to the Federal Reserve! Send them a copy of your complaint and a summary of your calls.

Here is the link to the Federal Reserve Consumer Help web site:

http://www.federalreserveconsumerhelp.gov/

Of course, you should try to bank with a bank that does not charge monthly fees and you should try NOT to overdraw your account. But if you are “overdraft prone”, you might want to go ahead and open an account with First Security Trust Bank. http://free-overdraft.com/signup/home.html They have a high monthly fee, $19.95 per month, but they say no overdraft fees.

I have not used them, so I don’t how it is. If you have used First Security Trust Bank, please post comments about them here. Thanks!