Increase Your Degree of Control Over Bank Overdrafts

Overdrafts can be maddening, to say the least. You check your bank statement, not expecting anything unusual and – boom – you see an overdraft charge (or two, or three). Your balance is now even lower than it was before because you have just paid $25 or $35 per overdraft charge to your bank. That hurts.

In banking as in life, it is easy to feel trapped by that which we cannot control. Nobody likes to feel at the mercy of their bank, especially when overdraft policies are not always clear. Fortunately, knowledge is power, and forming an understanding about just how banks operate in regard to overdraft fees is the first step toward controlling your overdrafts.

Games Banks Play

While we all want to believe in the idea of our bank looking out for our best interests, in reality banks must always strike a balance between maximizing their own profits and keeping customers happy. In recent years, a growing number of individuals and consumer groups believe that banks have been blatantly favoring their own interests. In terms of overdraft fees, that is to the tune of over $26 billion in overdraft fee profit per year in the U.S. alone.

Here are just some of the games banks play to squeeze money out of you in the form of overdraft fees each month:

1. They stack transactions: banks have admitted to the practice of actually processing the higher-value transactions first, then moving on to the lower-value ones. This results in your having a greater chance of incurring overdraft fees.
2. They make online statements unnecessarily hard to read: sometimes, the truth about your current available balance is not so apparent just by quickly glancing at your statement. For example, a check that already shows as having been paid in your “pay bills” area may not yet be reflected in your current balance – thus giving you a false impression about available funds.
3. They honor debit card charges even when the charges would push you into negative balance territory and cause an overdraft fee.

How to Exercise a Greater Degree of Control Over Your Bank Overdrafts

Your degree of control over bank overdrafts will determine how you feel about your relationship with your bank. Here are the main leverage points you have in terms of control over your bank overdrafts:

1. Educate yourself about how banks work behind the scenes in regard to overdrafts. (Check! – see above).
2. View your account balance twice per day, especially when it is running below $100 or when there are large un-cashed checks.
3. Understand how to read between the lines of your online banking statement. For example, keep a separate log of outstanding checks, and confirm whether all payments that show as having cleared are already deducted from your current available balance.
4. Keep a pad of at least $100 in your account. Not everyone has the luxury of doing this at all times, but it’s worth aiming for.
5. Don’t be shy about protesting an overdraft fee you feel was wrongly-charged. Your bank may sometimes give you a break if you explain your argument clearly and calmly.

Of course, in a way this is all a big cat and mouse game. No matter how well you learn to play it, your bank will always be trying to find ways to milk more overdraft fees out of you. The very best way to overcome the feeling of being trapped by your bank is to switch to a bank that does not charge overdraft fees, even if you overdraw your account. They are out there and worth looking for.