 Don't
blame bank for your mistakes
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 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
 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."
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