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Dr. Don Taylor, CFA, Bankrate.com advice columnistDon't blame bank for your mistakes

Dear Dr. Don,
I bought a home recently and as a result my cash flow has become tight. I have a toddler and another child on the way so taking the time to monitor my bank accounts on a regular basis has also become kind of tight.

I have overdraft protection from a credit card for my checking account, and it has kicked in a lot more than I would have liked recently. I would prefer an account with no protection, but the fine for a bounced check or transaction is higher than the finance charge for an overdraft ($25/transaction versus $15/day).

What would be ideal is an account that simply rejects transactions that would bounce without charging a gargantuan fee/fine. Since these transactions are processed by computers and there is no handling effort, I think the banks don't have a good justification for charging these overdraft fees/fines.

So my questions are: What justifications do banks bring forward to charge overdraft fees/fines? Do you know a bank that offers the type of account that I'm looking for?
-- Henrik Heartburn

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Dear Henrik,
It's not the bank's fault. A checking account is also known as a "demand deposit account." That means that the financial institution is obligated to pay claims against the account on demand, providing that there are funds in that account to cover the claim.

When you write checks or make payments on the account and there are insufficient funds to cover the transactions, the bank does reject the transaction -- just like you would have it do in your ideal account. It's not the bank's responsibility to have sufficient funds on deposit, it's yours.

Wishing for a world where there are no bounced-check charges or overdraft fees isn't practical. What is practical is to stop overdrafts in your checking account. Then you avoid all those fees. If you've got your overdraft protection kicking in more than you'd like, you're misusing the protection feature as a form of short-term loan.

Not having the time to monitor your spending doesn't cut it as an excuse. Between electronic bill payments, money management software or just a good old-fashioned household budget, it's your responsibility to have sufficient money in your checking account to cover the payments drawn against that account.

There are other options for overdraft protection besides tying the checking account to a credit card. They include linking a savings account to the checking account or setting up an overdraft line of credit with the bank.

The Federal Reserve Board publication, "Protecting Yourself from Overdraft and Bounced-Check Fees" provides a nice overview of the importance of avoiding these fees by keeping enough liquidity in your checking account.

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "financing a home," "saving & investing" or "money."

Bankrate.com's corrections policy -- Posted: May 26, 2006
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