Non-sufficient funds fees bouncing higher
By Laura Bruce • Bankrate.com

There are two lessons in this story: A) You should balance your checkbook; B) Spending more money than you have is a bad, bad thing.

The latest Bankrate.com survey of the ever-unpopular non-sufficient funds (NSF) fees shows that bouncing a check is expensive and getting more costly.

Nationwide, the average fee for a bounced check has increased 2.4 percent in the last six months, from $23.87 to $24.45. As you might expect, credit unions charge less for bounced checks than thrifts or banks.

The dubious distinction of having the highest NSF fee in the country goes to Mellon Bank. Spend more than you have in your checking account, and they'll hit you with a $35 fee.

At the other end of the spectrum is Star One Credit Union in Sunnyvale, Calif., where being overdrawn will cost you a quite reasonable $9.

Joe Fagenstrom, vice president of marketing at Star One, says the Silicon Valley credit union can keep its NSF fee low because they don't see many bouncing checks.

"We have a fairly narrow customer base -- higher income, more affluent -- specifically, engineers. They tend to have higher average balances. Plus, we offer free overdraft protection."

The NSF lowdown
The lowest NSF fees, whether at credit unions, banks or thrifts, are in California. Alana Golden, of the California Department of Financial Institutions, says state civil code caps NSF fees on state-chartered institutions. Competition within California may keep nonchartered banks, thrifts and credit unions in tandem with state institutions.

Todd Louden Slager, vice president of retail deposit products at U.S. Bancorp, which has branches in California, says consumer groups in that state may also play a role in the low NSF fees. Slager says those groups have been very active in getting banks to establish a more-tolerant policy toward those who may bounce a check for the first time. According to Slager, many banks have a tiered system that charges an escalating NSF fee depending on how many checks a person has bounced.

The initial NSF fee is just part of the picture when it comes to bouncing checks.

Besides paying the bank's fee, you may also have to pay a fee to the retailer or business you paid with a bad check, since they probably have to pay a fee to their bank. Remember that little sign near the cash register -- "$20 NSF fee"?

There's more. Banks like to make easy money just as much as you do. Suppose you had $300 in your checking account and wrote six checks totaling $375. The six checks are for $200, $12, $50, $60, $23 and $30.

If they all come back to the bank at the same time, the bank could clear the last five checks and just bounce the one for $200. You'd pay one NSF fee. But, more than likely, the bank will clear the biggest ones first; so, the $200 check clears and so does the $60 check. But with the $50 check you're overdrawn. So, you pay four NSF fees.

Protect yourself
You can save yourself this hassle by getting overdraft protection. If you have a checking and a savings account or a checking account and a credit card with a particular bank, the bank will link your accounts and draw from one if you're overdrawn in another.

Most banks charge a fee for this service, but some offer it for free if a customer has several accounts or carries a specific balance.

If you bounce checks on a regular basis because you have trouble balancing a checkbook, there is something you can do besides paying for overdraft protection. It may make it even more difficult to balance your checkbook, but at least you shouldn't bounce a check.

Put $50 or $100 in your checking account and don't add it to the balance. It'll be a cushion, at least for a while. If socking away that much cushion is too painful, try rounding up to the next dollar amount when you're deducting a check from your balance. In other words, if the check is for $10.25, deduct $11 from the balance. It'll take a while to build the cushion, but it will happen. Just be careful about bouncing checks in the meantime.

It may not be the brightest way to manage your checkbook, but neither is paying NSF fees.

-- Posted: May 8, 2001