Best checking and savings move: Ask questions
Page | 1 | 2 |

Avoiding penalty fees
Banks and credit unions collect $10.3 billion annually in overdraft fees, according to 2004 data from the Center for Responsible Lending. Here's what to do to make sure none of that money is yours.

Avoiding penalty fees:

• Grasp the rules. Make a point of understanding your financial institution's rules for crediting and debiting your account. Just because you made a deposit doesn't mean that money is actually in your account. Some institutions hold checks for a certain period of time. Some put cash in immediately, others may not. And some banks will put restrictions on deposits made after a certain hour of day. In addition, banks can change the rules at any time -- so inquire regularly -- especially if a particular deposit is critical. While these may seem like trivial details, they can make the difference in whether you have a balance in your account. • Keep your own books. Count money as gone from your balance the minute you write a check or use the debit card. Reconcile your records with the bank at least once a week (several times if you're a serial debit user.) Forget the old "float" period when you're paying bills. And don't rely on a balance from the bank that may not reflect a check or debit charge that hasn't yet hit. "Never write a check unless the money is in you account," says Gail Hillebrand, senior attorney with Consumers Union. • Ask about fees and fee policies when you shop financial institutions. What are the fees the institution charges? What triggers them? Are they mandatory or discretionary? If they are discretionary, how is that decision made? What are the alternatives? As a customer, "I'm looking for the pitfalls," says Oleson. "What's the catch here?" • Find out what the limitations are on that free or no-frills checking account. Some have limited check-writing privileges or may limit you to ATM transactions only, says Sherry. Others can have few, if any, restrictions. • Keep a cushion in your account. Set your own minimum balance, just so you have a safety net, says Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group. It doesn't have to be much -- just enough to keep you from dipping into the red zone if checks or charges go through faster than your deposits. • Dispute penalty fees assessed on your account. You may have some leverage, especially if you have a long relationship with the bank, don't normally incur fees, or have CDs, a savings account, or other money in the institution. "There's more of an onus on customers to understand the wide variety of fees that can be imposed and find banks that don't charge them," says Hillebrand. • Make a conscious decision to join (or opt out of) your institution's courtesy overdraft program. Many institutions will automatically enroll you in the program, and you have to actively take steps to opt out. Find out about courtesy overdraft fees and how the decision is made whether to pay or refuse a particular check or debit charge. Can you opt out for your debit card and let the institution simply refuse debit card transactions that would take your account balance below zero? Are there alternatives? Many times, you can apply for a line of credit, which can be tapped for a nominal fee, should you overdraw your account. You can also do the same thing by linking your savings account to your checking account. But be careful. If someone gets your financial information and drains your checking account, he or she could also access those additional resources. On the plus side, with courtesy overdraft protection, the bank usually makes no promises that any check or charge will be paid. And in many cases, you will pay a fee whether or not it honors the debt. But if you set up your own overdraft protection using a line of credit or a link to savings, checks and debit charges will be paid every time.

Dana Dratch is a freelance writer based in Atlanta.

<< Previous article | Next article >>

Page | 1 | 2 |