Although I do have some empathy for the tremendous financial losses that many of our banking institutions are facing with the credit crunch, I’d have to say this is pretty underhanded. One of the latest ways banks have found to boost revenue includes jacked up fees and policies that have been re-written to maximize the potential for consumers to overdraft their account, putting even some of the most diligent customers at risk.

Banks are using software programs to help them to single out and pay overdrawn funds without regard to the account holder’s ability to pay back the overdraft amount and any included fees. Additionally, they have overdraft policies (ironically dubbed “courtesy” policies) that allow the bank to cover charges that would otherwise simply “bounce” and the customer assessed an insufficient funds fee. Instead, the bank covers the shortage and charges an overdraft fee, typically in excess of $25 a pop; definitely something to avoid.

Here are some of the situations that banks may use to snare you into this trap, and tips to help you stay a step ahead of the game:

• Changing the Order of your Account Deposit and Withdrawals in order to maximize the potential for an overdraft. That is sneaky, isn’t it? Many banks pay daily transactions in order from highest to lowest, with the justification that the “larger payments are likely the most important; such as rent or mortgage”. Ultimately, however, the result of this practice in the event that an account has a shortage of funds, instead of simply one check bouncing (the largest one) potentially all the smaller ones will bounce, and with each, multiple fees, putting you in the poorhouse. A solution? Make sure you always have a buffer amount in your account that is never (planned to be) spent: $100 or whatever you can easily afford.
• Debit and ATM Card Withdrawal Cushions that you presume are there but they really aren’t. In other words, you go to make a transaction either at the ATM or at the gas station, and even though you don’t have the funds (and the software knows it) you are allowed the transaction anyway, and they get to charge you their fees. A solution? Request that the debit-overdraw amount on your bank account be set to zero; that way, any transaction that would exceed the value of the account will simply be rejected.
• Extended Overdraft Fees. Kind of like an overdraft of an overdraft, this is where you fail to pay the bank back for your foible and often, you are charged a daily fee until it is paid back. A solution? Set up an attached line of credit or automatic transfers from your savings account.
• Maximum Daily Overdraft Transactions. Very few banks even have a maximum established, and you’ll typically pay over $200 before the max kicks in for those that do. Additionally, many banks use a tiered overdraft system that escalates charges for subsequent overdrafts. A solution? Many banks will waive the fees particularly if it is a first-time offense, and if all the associated fees were a result of one incident.

Does anyone else have some suggestions for avoiding overdraft situations?

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