Stop Overdrafting!

Our tip box is organized by complaint category. In the “banks” section, email after email starts roughly the same way, “I overdrafted my account and then a series of horrible events ensued.”

Ok, now, granted, overdraft fees are on the rise, and banks are adjusting their rules to trip more people into overdrafting and then charge compounding penalties. With that in mind, don’t we all owe it to ourselves to take even greater personal financial responsibility Don’t spend more than you currently have in your bank account. Don’t lose track of your auto-deductions. Don’t write a check that cannot be instantaneously cashed.

If you often find yourself overdrafting at the end of the paycycle, you’re spending too much and/or making not enough. You must change one or both.

Our excel budget sheet keeps track of expected monthly expenditures. Each month gets a total balance that incorporates all expected debits. We walk around with that number in our head as if it were our current total balance. If your budgeting system doesn’t allow for the same, you need an upgrade — and if you don’t have a budgeting system, you need to get one. — BEN POPKEN

RELATED:
Consumerist’s 9-Step Beginner’s Budget
Stop Living Paycheck To Paycheck
1948 Instructional Film On Budgeting
(Photo: Getty)

Comments

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  1. anatak says:

    Even if you are good about sticking to a budget, it helps to pad your account by $50-100 just in case you get double charged, or someone places a hold…

  2. Falconfire says:

    I just noticed a nice little “gotcha” that BoA pulls on their online checkbook setup.

    I have my car payments automatically paid through the BoA website to GMAC. While the car payment is put through on the day its set up for, BoA doesnt actually deducted the payment from your checking account for up to 2 days AFTER its been sent, despite the fact its BoA’s own website that does it.

    If you where not paying attention you would think you miscalculated how much money you had left over, not that BoA never deducted the money from you account despite showing the check was payed out.

  3. Starfury says:

    If you’re constantly spending more than you earn it’s time to take a look at your expenses and stop the ones you’d don’t need. It’s amazing how much you can stop spending if you bring your lunch and cut out Starbuck$.

  4. Buran says:

    @Falconfire: I did overdraft – once – when their site started doing that. It pulls the money out on the day the payment arrives, not the day sent as it used to do. It’s no big deal to adjust to, but since it was my own fault that time for forgetting, I didn’t challenge the fee.

    I’m not one of those losers who try to get out of the consequences of their actions (not saying you are, either, mind) and I shouldn’t have forgotten.

    I still will use them over USPS which has been known to lose things.

  5. Falconfire says:

    @Starfury: You dont have to be spending more than you earn to not have enough money in your checking account.

    If you dont have interest on your checking account, and have no reason to keep a minimum balance, then there is really no need to have more than 50-60 dollars in your checking account.

  6. iMike says:

    It doesn’t address the root cause of overdrafting; to wit, spending more than you have, but you can avoid overdraft fees and multiple bounces by setting up overdraft protection.

    There’s typically a fee but it’s a whole lot less than the fee for bouncing a check.

  7. Slusy says:

    It helps to check if your bank will let you configure an online alert to e-mail you when your balance drops below a certain dollar amount. It’s no substitute for monitoring your accounts, but it’s good to have a failsafe so you can go online and transfer some money before your bank starts hitting you with overdraft fees.

  8. quagmire0 says:

    No,

    I don’t think you understand. You see, it all started when I overdrafted…..

  9. myrall says:

    One particularly bad stretch in college (if you can call 3 years a stretch) fixed most of my bad spending habits. I now really freak out if my bank account gets lower than $200. I haven’t bounced a check in 5 years.

    And even then, it was inadvertent because I didn’t fully understand BoA’s policy with debit card transactions (i.e. the money’s there. No, wait. It’s not. Oh, yes, there it is. Nope, now it’s gone). And that’s not to say that there weren’t some really lean unemployed times where there’s $1.30 sitting in the account and you’re praying the bank doesn’t decide pull its fees.

    C’mon kids, it’s not that hard to keep an eye on things.

  10. tcp100 says:

    Seriously, there’s no reason anybody should overdraft if you are halfway responsible about things and aren’t just plain overspending.

    When I get my paycheck on the 15th, I deduct everything that MUST come out before the 30th (next paycheck) THAT DAY.

    My car payment comes out on the 28th, but I mark it as gone on the 15th. Water bill is due the 22nd, but it’s gone the 15th.

    The number I arrive with after THAT (and it’s the same every month) is my “available balance”. I don’t give a rat’s ass if my ATM slip or bank website says it’s higher – I know it REALLY isn’t, and that’s what I have available.

    Sure, you have overdraft protection in case something gets double billed or you write something wrong, but if you are using the balance on your ATM slip as a budgeting tool in any manner, you are yourself a tool.

    Seriously, pick up MS money or Moneydance (free) or use an excel spreadsheet, and mark out the expenses you KNOW you’ll have prior to your next paycheck. It’s not hard. Back in the day, people had these things called check registers, where they wrote down everything they spent. They still put ‘em in checkbooks, believe it or not!

    There are really no excuses for overdrafts other than the freak, “what the hell / oops” mistake occurrences. If you think otherwise, or blame the bank more than once for something like that, you have issues.

  11. tcp100 says:

    @myrall: “And even then, it was inadvertent because I didn’t fully understand BoA’s policy with debit card transactions (i.e. the money’s there. No, wait. It’s not. Oh, yes, there it is. Nope, now it’s gone).”

    It looks like you figured it out, but some people still haven’t, and never will.

    There is never a question as to when money’s gone.

    When a check is written, a card is swiped, or a “pay” button is clicked, the money is gone. It doesn’t matter what any balances say. The money is out of play.

    For monthly auto-debits, say, a car payment or something – consider that money gone on the first, or whenever you get your paycheck preceding that payment.

    If someone’s fretting over whether a debit has actually occured yet or not, here’s a tip: pretend it has, and don’t overdraft.

  12. exkon says:

    My friend works as a Personal Banker at BoA and he constantly gets customers in asking to reverse their overdraft fees.

    The best story he told me was:

    Some guys walks into the bank demanding that an overdraft fee be reverse or there would be hell to pay. When looking at his account he had overdrawn his account by like 30 cents.

    He KNEW he had like $1.50 left, so he HAD to buy whatever item at $1.80. The asshole KNEW he didn’t have the money to purchase the item and did it anyway. Then goes into the bank like it was the bank’s fault.

    Idiots.

  13. jonesma says:

    One thing that has really worked for me is having two accounts. One for bills and one for other expenses. I have my direct deposit post 50/50 into both accounts and no matter what time of the month the bills come due, the money is there. It’s worked like a charm! (BoA, by the way)

  14. acambras says:

    What tcp100 said.

    Ben mentioned that most of these stories seem to involve overdrafts. Another thing I’ve noticed is that people are surprised when their banks don’t “have their backs.”

    ASSUME that the bank NEVER “has your back.” Never trust the bank to keep track of your balance or your check register for you — that’s YOUR job.

  15. theheights says:

    This is one of my grammatical pet peeves, having worked at a bank for a while.

    “Overdraft” is a noun.

    Ex: I have an overdraft on my account.

    “Overdraw” is the corresponding verb.

    Ex: Stop overdrawing!
    Ex: I overdrew my account.

  16. Jacemg says:

    Sure to overdraw** is the worst financial self infliction one can knowingly or unknowingly put on themselves, and should be avoided at the cost of one’s own life. That being said is there any justification in a $35.00 fee on $0.30 as mentioned above? It reaches the point where a deregulated industry or ‘free market’ no longer receives merely compensation by these out of control fees, but a large stream of revenue. Sure, life ain’t fair. But if you guys are the consumerists- who are you sticking up for? It seems the bankers have made the poor, poorer- and themselves much much richer.

  17. consumer_999 says:

    Sometimes it doesn’t matter if you don’t overdraw. There’s my case, where my bank recently bounced my quarterly estimate (taxes) check, despite 1) having enough in the account, 2) having a linked savings account, and 3) having more than enough in 2) to cover it if I didn’t have enough in 1).

    So, I went to my bank, indicated their goof-up, and got the words, “again, we’re terribly sorry, this was a bank error.” Also, it sounded like someone was going to be in some trouble when he got back from his week off.

    But what I want to know is, where’s my compensation?

  18. revmatty says:

    Have your savings account set up as overdraft protection on your checking account. That way you still get interest. And also keep a comfortable cushion in your checking account.

    And as tcp notes: once you’ve committed that money to something, it’s gone. Floating doesn’t work. Don’t do it. Hell, in the running balance I keep in my head I deduct things that I’m not even paying until next week or the week after because I know that money has to go to that particular bill in the near future.

  19. MandM813 says:

    How funny that this was posted shortly after I complained about my B of A overdraft nightmare lol. When I first saw it, I was like “Wow, they are talking to me!” I feel so special : )

    It’s true though, I have no one to blame but myself…

  20. nighthwk1 says:

    Easy solution: use a credit card, not the bank’s debit card. As long as you make it a priority to pay the entire balance at least once a month, you’ll never pay a fee–and if you have a decent card, they will pay you.

    Now if you overdraw your bank account to pay that credit card balance… then you have problems. But at least it will only be one overdraft charge.

  21. Vicky says:

    I have to echo the above comments on having multiple accounts. Just take your monthly fixed expenses – rent, mortgage, car payments, insurance, Netflix, what have you – and deposit that into a separate account. You can set up auto-drafts or online bill pay from that account with confidence. Fixed expenses only, people! This is functionally the same as the “pretend your car payment has already cleared” method, but you actually take the money out of play before it ever reaches a debit-card account.

    Optimist spin: You can easily identify and budget for all of your fixed expenses, which is a good first step toward paring them down.

    Pessimist spin: Next time you overdraw, it’ll be on your variable-expenses account and you won’t bounce your rent check.

  22. quagmire0 says:

    @nighthwk1: Exactly. With all these rewards cards out there, you are throwing away free money by not using a credit card whenever you can. Be a grown up and treat your credit card like you would your debit – keep things on budget. Then reep the rewards and get the cash back for being fiscally responsible. :)

  23. Buran says:

    @Falconfire: Oh, and BTW, I don’t usually run that close to empty. But, as they say, it never fails …

  24. Squeezer99 says:

    use a credit card, pay it off every month. no overdraft

  25. lihtox says:

    A word about overdraft protection, at least at WaMu: overdraft protection will allow check-card transactions go through when the account is overdrawn, with the usual $35 overdraft fee. If i understand right, NOT having overdraft protection would mean that the check-card would be rejected, which would have been a lot cheaper for us when this happened to us (we had a week’s worth of overdraft fees before we caught on; a rejected debit-card would have warned us instantly). So overdraft “protection” might be a BAD idea; look into the details before signing up.

  26. tcp100 says:

    @Jacemg: “That being said is there any justification in a $35.00 fee on $0.30 as mentioned above? …Sure, life ain’t fair. But if you guys are the consumerists- who are you sticking up for? It seems the bankers have made the poor, poorer- and themselves much much richer.”

    Part of being an effective consumerist is to promote responsibility. When the consumer is being responsible, the big company has no excuse for their actions.

    Likely, you’d hear MegaBancCorp say something like “We charge the $35 fee as a deterrent. A $1 overdraft may not be much to you, but when we have thousands doing it every week, it’s a problem.”

    Believe it or not, banks don’t like people who constantly try to take more money out of their accounts than is there. There is no profit in someone who keeps $1.30 in their account constantly.

    You need to look at this as a bit of ‘making up’ for the culture of free checking, no minimums, and no charge for things like debit cards and the like. The bank has to make money somewhere, and it’s a heck of a lot easier to make money by charging someone when they screw up, versus charging all their good customers for typical conveniences.

    Consumerism is great, but we can’t expect companies to be charities. Honestly, overdraft fees are something you can control. Policies that encourage people to overdraw when they typically wouldn’t (I.E. BoA) ARE a problem.

    However, if you have free checking, with no minimum, and no other charges AND you keep a low balance to the point where overdrawing is a risk – I don’t think you’ve got a lot of room to complain when you screw up. You’re a lousy customer, and the bank doesn’t need you. I know that sounds harsh, but it’s true. The bank’s not a charity, nor should they be. I’ve never had a bank not forgive a charge or two when it’s a rare occurence and I’m a good customer.

    However, I’ve had plenty of friends whine that their bank closed their account after their 4th or 5th overdraft. Well, tough luck. Consumerism has to work both ways.

  27. swalve says:

    tcp100- bravo. Thank you.

  28. danger the pirate says:

    this is why i looooove my credit union. free checking, lots of good stuff. i had $210 in my account, wrote a check for $400, forgot to deposit the other $200. The bank pays out the check and only charges me $25. I am the poor college student, so i couldn’t put any money in for about a week. no daily fees, just a one time $25 fee. awesome. Wright-Patt Credit Union is my personal Jesus. southwest ohio check it out! [www.wright-pattcu.coop]