Bank Account With Overdraft

Bank Account With Overdraft

Most individuals checking accounts fail to sign up for overdraft prottection, which can end up costing lots of money in the long term, especially for those people that fail to balance their checking accounts on a regular basis.

We all make mistakes. sometimes those mistakes involve writing a check for money that isn’t available in our bank checking account. If you make this mistake frequently, you’ll want to know about overdraft protection plans.

What Does it Mean When Your Bank Account is Overdrawn ?

In simple terms, overdraft protection helps you should you write a check and not have the funds in your account to cover that check. That is the simple explanation, but there is often more to it than that. This article looks at some of the common issues associated with overdraft protection.

Normally, when you write a check that bounces, the check is returned unpaid to the company or person who deposited it. Fees are usually charged by the party who returned the check and you have to pay those fees. 

In addition to that fee your bank may also assess a service charge to you for having written a bad check. These fees can add up quickly, and even a small check written for a few dollars can suddenly cost you much more by the time you pay all of these fees and service charges.

If The Overdrawn Amount Is Smal

Sometimes, if the overdrawn amount is small, and you have been with your bank for a long time, they may go ahead and pay your check, but they will still assess a fee for payment. These fees can run from a few dollars to up to thirty dollars or more, per check. this is where overdraft protection comes in handy.

Overdraft protection will it is used to cover a check for you is not free in most cases, but it will normally cost much less than bouncing a check. First, because the bank will pay the check (up to a certain amount).

The person you wrote the check to will get the funds and not have cause to charge you a fee. The bank for its efforts may charge you a smaller fee for honoring the check but, again, this is usually less than a regular service charge for a dishonored check.

Consumers should understand that even with overdraft protection there is a limit to how much the bank will carry in overdrafts for you. Once you hit that limit the bank will begin to return checks as if you had no overdraft protection at all.

It is also important to understand that if your account is in the negative (meaning you have a debt to the bank because of overdrafts) any money you put into the account will go towards paying that negative off. In other words, if you are $ 200 below zero and you put in $ 100 of new funds, your account will show a minus $ 100.

Benefits of Overdraft

Most banks have a set amount of time that we will allow you to get the money back into your account. Thirty days is a normal time frame used by many banks before they take action. If you do not replace the money within that time the bank may begin to charge interest.

Overdraft protection is a very useful tool to have but it should be used only in emergencies. Its purpose is to protect you from higher fees and service charges, and in that role it does a good job. 

It should not be seen as a means of quick cash or as a loan vehicle, which many people treat it as. Overdraft protection is a privilege that your bank extends to you and as such it can be withdrawn if it is abused.I

How Long Can a Bank Account Be Overdrawn? 

If you have overdraft protection on your account, the bank will cover the check (or pay the money) for you. Let’s assume that you write a check for $100 and you don’t have $100 in the bank. The bank might allow the check to clear, and simply expect that you pay back the $100 later.

Of course, there are limits. You’ll find different limits on the dollar amount that an overdraft protection plan will cover. Also, you may have your privileges revoked if you frequently write checks in excess of your available balance.

What Happens if i Overdraft My Bank Account

Most banks charge for overdraft protection. They do this partly to keep you from abusing the service. Also, it creates a source of revenue for the bank.

 Make sure you know what the charges will be if you’re going to add an overdraft protection feature to your account. Typically it will be similar to the non-sufficient-funds fee.

Next, there may be interest costs. Depending on your overdraft protection plan, the amount of your overdraft might be considered a “loan”. In that case, the bank charges interest until you repay. This is usually less expensive than paying a flat fee for each overdraft that hits your account.

Finallyremember the bigger picture. If you use overdraft protection too

often, it means you’re getting into bad habits that can cost a lot over your

lifetime. It’s a sign that you haven’t managed your cash-flow well. 

Although bounced checks don’t show up on your credit report, They can affect small banks and credit unions evaluate your creditworthiness.

Is it Bad to Overdraft Your Bank Account

Let’s focus on the most important thing: It costs money to have overdrafts. Obviously, the reason you had one is because you didn’t have enough money available, and now you have less. You can see how overdraft protection does not help you in the long run.

The main benefit of overdraft protection is that the party you wrote the check to is not aware that you were short on cash when you wrote the check. This keeps you from becoming embarrassed if you wrote the check to a friend or business partner.

The other benefit that is worth mentioning is that you can avoid bounced check fees from the retailer. If you don’t have overdraft protection, you may have to pay a fee to your bank (non-sufficient funds or nsf) and an additional fee (returned-check) to the retailer. Ultimately, you can end up with negative reports in your file.

Bank Account With Overdraft : Overdraft Fees

Getting an overdraft on your bank account is never an economically advisable situation. Receiving an overdraft essentially means you are taking out a small personal loan from the bank as you are wishing to spend more cash than you actually have in your possession.

Most banks will have an overdraft option on all of their accounts and most will kick in automatically when you try to spend more money than you actually have within your account.

There are virtually always hefty fees associated with running up an overdraft on your account. This can include an initially charge for dipping into your overdraft, additional fees every time you use money in your overdraft and or a rate of interest that will continue until you have your overdraft paid off.

The Best Way To Avoid Fees Is 

To avoid an overdraft all together , but if you want to minimize fees and have no option but to take out an overdraft then it is a great idea to shop around, and try to find the cheapest option at the cheapest institution, that suits the amount of money you wish to take out and the length of time with which you will need to pay it back.

One Of The Big Advantages Of An Overdraft As Oppose To A Direct Loan Is 

that the account still works almost exactly as your old account operated.

You can usually continue to use all of your bank cards and withdraw money

whenever you need up to the overdraft limit set by your bank, at which point

all of your transactions will be refused.

Many banks will be willing to extend your overdraft limit, particularly if you can show that you are earning an income and suggest that you will be able to pay the money back in a set period of time. 

For these purposes it is good to be able to provide the bank with evidence of your high value possessions, other financial standings, stock options and anyone who would be willing to underwrite your account.

Some checking accounts are automatically linked to other accounts within your bank and the money from other accounts can automatically transfer through your checking account to ensure that you don’t dip into your overdraft and you don’t have to pay the fees associated with doing such a thing.

This can include links to credit card accounts as well as savings accounts and occasionally staying away from an overdraft can increase your credit card debt.

If your credit card debt rises you will not have to pay any initial fees as you may have to with your overdraft but you may incur a much higher interest rate depending on your plan, contract and the institution with which you have your account. 

Best Bank For Overdraft Fees

Imagine having caused your account to overdraft by only 11 cents and yet you find out later that day that your bank has charged you a $ 34 fee to cover the charge. 

Ouch! and yet, this type of thing literally happens every day to millions of people. For some folks, $ 34 isn’t much money, but for most of us, we’d rather not have to pay it as a fee to our bank, thank you very much.

Overdraft fees have gone well beyond being just a penalty or slap on the wrist that a bank customer gets charged for not managing her checking account carefully enough. 

Rather, they have become a big source of revenue for banks in and of themselves – to the tune of over $ 25 billion per year across all banks in the u.s. alone.

Many bank customers who try faithfully to manage their checking accounts each month do a pretty good job. And yet, there can be that one charge that puts you over the edge by just a few dollars – and then come the fees.

The Bad News

The bad news about overdraft fees is that they are set up to be “trigger happy”: To make it as easy as possible for you to get charged a fee. 

For example, most banks with overdraft protection programs will allow a debit charge to go through, even when the account is overdrawn. This causes a fee to be charged to the account.

Another bad thing about overdraft programs is that they have traditionally been opt-out. This means that when you sign up for a new checking account, you are automatically enrolled. 

Many people are unaware of this, so they figure that if they try to put through a charge that will overdraw their account, the charge will just get rejected. that is why it’s a rude awakening when they check their bank statement and see a charge there.

The Good News

There is some good news in this area, however. For example, in response to government and consumer pressure, many large banks are changing their overdraft policies to make them more customer-friendly.

For example, some banks are now saying they will not charge a fee unless the account is overdrawn by at least $ 5 (rather than just a few cents, as before). Other banks are limiting the maximum number of charges you can incur in a given day.  And, some banks are also making their protection programs “opt in,” which means that customers will be given a choice about whether they want to join when they sign up for a new account.

The Alternative to Paying Overdraft Fees

 

Of course, the best alternative to paying these fees is to find banks that do not charge overdraft fees at all. While most major banks continue to implement strict overdraft policies, there is a new breed of banks that refuse to charge overdraft fees. 

These banks will actually cover an overdraft charge – Say when a customer uses a debit card or writes a check against an account with a negative balance – And yet still not charge an overdraft fee for the trouble. Cool stuff!

You can find no-overdraft-fee banks online. Make sure to contact at least 3-5 of these banks before you make a decision on a particular bank : While they all offer no-overdraft-fee checking, other details about each bank will of course vary. Choose the one that feels right to you.