As an employee of a large bank, I frequently hear about excessive overdraft fees from friends and acquaintances. Even people I’ve just met learn that I’m a banker and immediately want to talk about the hundreds of dollars in fees they’ve had to pay in recent months. The obvious sarcastic response — “Don’t spend money you don’t have!” — isn’t exactly helpful, but I’ve decided I should post the advice I routinely give when the subject comes up.
Here goes… Overdraft fee secrets from a banker!
First and foremost, you’ve GOT to keep track of what you spend. Daily. Without fail. Any time you are taking money out of your account, whether it’s an ATM withdrawal or a written check or a debit card charge, take the receipt and get in a daily routine of putting the amounts in a checkbook or some other online register. I use Quicken, but Microsoft Money is a good alternative on the PC front.
Don’t wait for it to clear; by then, it’s too late and you may have already overdrafted. Write it down or enter it into your online register the day you authorize it, so you can’t possibly forget. If you know what outstanding charges are waiting to hit your account, you won’t be taken by surprise.
When trying to track your debit card usage, don’t rely on what your Online Banking service says is a pending charge. Some merchants will take their sweet time actually processing the charge, and that temporary authorization hold (which creates a “pending” transaction in your account) will drop off after a couple of days. If the merchant, or the Merchant Services vendor that processes the company’s credit card transactions, doesn’t get around to it for a week, you’re potentially going to forget. WRITE IT DOWN WHEN YOU AUTHORIZE IT.
If you’ve got recurring charges every month that hit your checking account automatically, such as a gym membership or Netflix or a cellphone bill, you DEFINITELY want to use a program like Quicken or Money to keep track of your finances. Those programs will automatically enter those charges into your electronic checkbook every month, so you can see if you’re going to be in trouble before next payday. You know your student loan payment is going to come out of your account like clockwork — don’t let yourself be surprised.
And finally, don’t use your debit card when you don’t have to, if you’re getting close to payday and your funds are looking a little low. Banks typically process the largest transactions FIRST each day, which means you’re less likely for your rent/mortgage, car payment, big utility payments, large student loan payments, etc. to be declined. Good to know you dodged that bullet, right?
It also means that if you use your debit card to buy a pack of gum, and then later to buy a cup of coffee, and then later to buy a one-way subway card, you’re potentially in trouble if that big charge cleared out your account. You may have spent less than ten dollars on stuff, but your overdraft fees could be more than a hundred when you start adding them up for each small usage.
The simple solution? USE CASH if your account is getting close to zero. You really don’t want to spend forty bucks on that latte, when you include the overdraft fee you might incur. Save your debit card for online shopping and larger purchases. Good rule of thumb: if you’re worried about overdraft fees, and the purchase you’re about to make costs less than an overdraft fee, DON’T USE YOUR DEBIT CARD.
Debit cards are quick, simply, and rapidly becoming an indispensable part of everyday American life. They’re also a surefire pain in the ass when money gets tight, because those fees will make an already-bad financial situation even worse. You’ve GOT to keep track of your spending, in a daily routine that you never stray from, and you’ve got to be smart about using your card when you’re getting too close to zero.