Bank overdraft policies can make a small purchase into a big expense

Government agencies are taking a look at bank overdraft fee policies, their use and their fairness.

Earlier this year, the federal Consumer Financial Protection Bureau (CFPB) recently established by Congress through the Dodd-Frank Wall Street Reform and ConsumerProtection Act, announced that it was going to take a look into the overdraft practices of banks.

Most banks process daily checking account transactions for checks, automatic bill payments, ATM withdrawals and debit card purchases all made on the same day from the same account starting with the largest amount and working to the smallest amount. This can lead to the bank maximizing the number of overdraft fees it charges a customer. The average overdraft fee charged by a bank is about $25 to $30 and they can add up to a significant sum very quickly. Suddenly that $5 latte can cost you much more. Studies show that in 2011, banks took in nearly $32 billion in overdraft fees.

To help protect yourself from these charges, opt out of overdraft protection on your debit card when asked by the bank if you would like the coverage. This will result in your card being declined if the transaction will result in your exceeding your account balance, thus protecting you from an overdraft fee. You might consider asking your bank to link your savings account to your checking account to protect you from overdraft charges. There might be a transfer fee, but it is usually lower than the overdraft fee. You can also take out an overdraft line of credit to cover accidental overdrafts. Interest will be charged on the loan that covers the overdraft, but again, it will probably be less than the overdraft fee. Still another way to protect yourself from incurring an overdraft charge is to sign up for e-mail or text alerts to let you know when your account balance falls to a certain level.

The final and most effective way to protect yourself from overdraft charges is by balancing your checkbook regularly and keeping a written record of all checks, debit card transactions, automatic bill payments and direct deposits. There is no substitute for careful record keeping.

If you have a story you would like to share about how bank overdraft fees have had an impact on you or would like to make a comment, this can be done at the (CFPB) website.

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