Avoid fees by incurring fees?

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Overdraft protection is connection to a credit or other bank account that the bank accesses when a withdrawal is made from a checking account with insufficient funds. Although the cost for this service varies from bank to bank, there is typically a fee per transaction.

Overdraft protection does provide value. It prevents you from bouncing a check and incurring the associated fees.

What it does not prevent are all the extra fees you’ll face. Daily overdraft fees and overdraft protection per transaction fees can be very costly. Some banks charge more than $30 per overdraft protection transaction.

You would expect banks to account for daily transactions in the order in which they were made. But some banks structure daily transactions from the greatest expenditure to the smallest at the end of each business day. This arrangement increases the likelihood that you will incur additional service charges.

Managing a checking account can be a challenge for many Americans because of the tight economy. Here are some suggestions for avoiding unnecessary overdraft  protection fees:

1. Balance your checkbook. When you want to buy something, enter the amount in your checkbook register first to make sure you have funds available.

2. Record any automatically deducted bills, such as your car payment or mortgage, in your checkbook register so you have an accurate count of your actual available funds.

3. The only person that really knows how much money you have in your account is you, so make sure your bank statement is accurate. Reconcile your account each time you receive your bank statement. Banks do not recognize pending checks.

If you still find yourself incurring overdraft fees, consider using your checking account as infrequently as possible. If you are good with credit cards and never carry a balance from one month to the next, use a credit card for everyday purchases and track your spending using an online program such as Mint.

If you don’t trust yourself with credit cards, consider the envelope method and earmark and set aside cash for everyday purchases.

Brian Page is the co-creator of the award-winning financial education instructional game, the Awesome Island Game. He is an educator, and his students manage the online financial literacy organization TeenDollars.org. Find Brian on Twitter @Awesome_Island and at AwesomeIslandGame.com.