MONEYMoney Management

Know more about overdraft fees and how you can avoid them.

Know more about overdraft fees and how you can avoid them.

When you don’t have enough money in your bank account but still wishes to carry out a financial transaction, your bank may either decline the transaction or allow the transaction to sail through, when the latter happens, this is what is called an overdraft. It can be done through a check, ATM transactions, electronic withdrawal, in-person withdrawal, debit card purchases, or any other means.

Most banks offer overdraft services, but charges their customers a fee, this is known as overdraft fees, in most banks in the United of America, overdraft fees is about $34 per transaction. Many persons prefer overdraft because if a transaction is declined by the bank due to insufficient funds, a penalty known as the non-sufficient fee is charged, this fee is almost the same as that of the overdraft fees.

These two (2) similarly different scenarios have led to what is known as the overdraft protection law, because all accounts are on a default to always decline transactions when there isn’t sufficient funds in the account, and a non-sufficient fee would be charged each time you try to carry a financial transaction without sufficient funds in your bank account. The overdraft protection law now mandates all banks to provide a enrollment form for the overdraft services from customers, this is to seek your consent to be enrolled onto the overdraft services.

For those whose accounts was opened before July 2010 when the overdraft protection law was enacted, the bank would provide an enrollment form would to seek for consent, and for those that just opened their accounts, the form is always provided at the point of enrollment. This law has its own limitations and doesn’t cover recurring electronic payments, e.g bills that are set on auto-payment or written checks.

Types of overdraft fees

We have different types of overdraft fees depending on the particular bank demanding it, asides the common and standard overdraft fees, there are other fees which are charged by various banks, some of it includes:

  1. Extended overdraft

This happens when your bank account stays negative for a period of five (5) to seven (7) days, some bank may charge an overdraft fee based on a set schedule, Huntington Bank charges $25 as overdraft fees on the fifth business day after my account is overdrawn, they stop when you incur four (4) overdraft fees or when you top up your account balance.

  1. Overdraft transfer fee

Linking of accounts is done for several reasons, one of such is that it helps cut-off the banks for paying for the overdraft fees, as money would be transferred from one (1) of your accounts to the checking account for the fees to be paid. Even at that, some banks would still charge you for that, most U. S banks would charge $12.50 for transferring money from your savings account to your checking accounts.

  1. Overdraft line of credit

This can also be referred to as “Home Equity Line of Credit” (HELOC) or credit card, and can also be used to pay for payment of overdraft fees. This is done by not overdrawing your money to negative, the bank bring your account to Zero whenever you take an overdraft, create another line of credit, and you would pay whatever you’ve overdrawn at the normal interest rate that the bank is charging.

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