Avoid Costly Overdraft Charges From Your Bank

Most banks make a lot of money off of overdraft charges. Those NSF fees are a major source of revenue for financial institutions. For people like you, it's like a kick in the pants when you're already down in the dumps.

You probably want to avoid paying fees for being flat broke.

There are some traps you can watch for to prevent being charged for honest mistakes with your checking account.

Large Checks Are Cleared First:

Banks and credit unions don't necessarily process your personal checks in sequential order. Banks will often process and clear checks for larger amounts first. You could say this is because they assume larger checks are more important - like mortgage payments or car loans. But it could also be an attempt to squeeze a little more money out of your wallet.

For example - let's say four different personal checks came to your bank at about the same time - one for one-thousand bucks and one for 50 bucks. If you have $950 in your checking account and the bank processes the three $50 checks first, you'll only be charged one overdraft fee. But if your financial institutions clears the $1,000 check first, you be charged an NSF fee for all four of those personal checks! The bank just tripled its profits.

Debit, Check & New Overdraft Rules:

Believe it or not, debit cards account for around half of all overdrafts each year. All that could change because of new rules about overdraft protection.

You might assume that if you try to use your debit card and don't have enough funds in the account - it will be rejected. That's not necessarily the case - you now have to choose whether you want to accept overdraft protection for everyday debit card use, or decline it.

With overdraft protection for these small transactions, you could end up paying a $30 fee for a $3 purchase. Take some time to think about whether you need the safety net, or whether you'd rather manage your money more carefully.

Be aware of the fact that the changes in how overdrafts are handled do not apply to checks.

Pay Back Your Bank ASAP:

You are basically getting a loan from your bank when it covers the cost of an overdraft. If you don't repay your bank the money you overdrafted and any fees you may owe quickly - you could face even more fees. Most financial institutions give you a week to ten days to repay what you owe.

Four ways you can avoid overdrafts:

1. Always reconcile your account as soon as possible following an overdraft

2. Leave some pad in your checking account. You could put $100 or more in your account without recording it in your register. That way you won't use those funds.

3. Tie your checking account into a savings account or credit line so overdrafts come from these sources before they are covered by your bank.

4. Call your bank and ask them to drop the fee. Loyal customers who don't normally overdraft can save money by asking nicely.

Opting out of overdraft protection is another way to avoid overdraft fees with your debit card. Instead of getting a fee, your card will simply be denied at the register. If you have a back-up form of payment like personal checks or a credit card, opting out of overdraft protection might be a good idea.

Don't forget that using your check register and keeping track of all checking account transactions is very important.

While online banking keeps track of checks and debit purchases that have come into the bank, there could still be unprocessed charges or personal checks that you forgot about.

That's why keeping a separate copy of your personal finances will help you avoid overdraft charges.