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Fighting those pesky NSF fees

Dear Dr. Don,
What can I do about excessive overdraft fees? An electronic transfer posted a day later than expected and my checking account became overdrawn. Five transactions posted to my account and the bank charged me $34 for each. The telephone representatives were unwilling to provide any relief.

Is there anything I can do?

Thank you,
-- Michael Mutiny

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Dear Michael,
Writing checks for money that isn't in your account is euphemistically called either "playing the float" or "kiting checks," depending on your perspective. Regardless of your perspective, it's gotten progressively harder to do with improved efficiencies in check-clearing procedures.

Check 21 is just one example of these improved efficiencies. The Bankrate feature, "Check 21: New law ends checking traditions," discusses Check 21 in more detail while another feature, "That floating feeling: Technology makes the float risky for consumers," discusses the changing landscape in check clearing with some hints on how to manage that process.

Bottom line is that you're going to have to manage your account more carefully to avoid these fees. According to Bankrate's checking cost survey, the national average for an insufficient funds charge, or NSF, is $26.90, so your bank's $34 is a bit pricey, but the key is to avoid these fees, not find a bank with low NSF charges.

Often banks draw the checks against your account by size, with the largest check going against your account first. If the order were reversed, it could minimize the NSF charges, but the bank isn't looking to minimize these charges.

The temptation is to vote with your feet and find a new bank, but that becomes problematic because these NSF transactions are likely to show up on your ChexSystems consumer banking report. Banks will typically pull this report as part of the account application process and may decline your business based on this report. Negative information stays on your consumer banking report for five years. You have the ability to dispute any negative information on your report, but I don't see the point in your case. This specialty consumer report falls under the provisions of the 2003 Fair and Accurate Credit Transactions Act, so you are entitled to one free copy of that report each year. The Bankrate feature, "Specialty consumer reports reveal your secrets," tells you how to request this report.

Assuming we're talking about a brick-and-mortar bank, go into your home branch and calmly discuss your NSF problem with an account relationship manager. You may find a more sympathetic ear. While you're there, discuss the overdraft protection options the bank has, which may include a line of credit, a credit card or a savings account linked to the checking account. Of course, the linked account requires you to build a cash cushion to be available in the savings account.

A cash cushion is a great idea. You've gone beyond living paycheck to paycheck when a day's difference in a deposit getting credited to your account creates $170 worth of NSF fees. It may take some time to get to the point where you have the cash cushion. Another form of overdraft protection, such as a line of credit or credit card, can serve as an intermediate solution.

If your bank offers it as an inexpensive option, try using online banking as part of your bill-paying strategy. There are some float issues here as well, but you at least have the ability to see when money has been credited to your account.

Bankrate.com's corrections policy -- Posted: Jan. 13, 2006
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