Remember: Checks Can Still Overdraft

Just remember, even though starting this week banks can’t charge you overdrafts unless you opted into their overdraft program, they can still authorize overdrafted checks, ATM withdrawals, and automatic bill payments at their discretion and charge you a fee for it.

There are cheaper options than overdrafts. The least expensive is to make sure that you never write checks when you don’t have enough money in your account. Also, your bank may let you link your checking account to a credit card, savings or a line of credit. Typically they will charge $5-$10, which sure beats $30-$40. Bill Hardekopf of Lowcards.com also recommends signing up for email and text alerts from your bank so you can get automatic low-balance warnings.

Later this week I will post an updated version of my beginner’s budget excel sheet that used properly will make it so you never overdraft again.

Comments

Edit Your Comment

  1. tgrwillki says:

    Or even worse, the banks can send the check back NSF, charge you a fee for that, then pay it on the next time through, along with the fee for the returned check from the the other bank.

    /happened to me this month when my leasing co cashed my rent check earlier than promised, despite the check being post dated.

    /Yes, I know not to post-date checks, but I was going out of town, and that was the only viable option. Instead, I ended up paying my rent twice, along with $95 in fees, because I was dumb enough to catch the NSF early, and call to pay my rent by credit card to try and avoid the check being sent back though.

    • craptastico says:

      i don’t see how you paid rent twice. If a check’s rejected for NSF the money should stay in your account

      • peebozi says:

        he didn’t pay rent twice. the forst time the check didn’t clear for NSF…$35 hit. then when it was redeposited 2-3 days later, they allowed it to go through. plus it sounds like they dinged him for the returned check?

        • blueduckconsumerist says:

          He paid the rent twice. First time the check was returned NSF. $35 fee. He noticed and called the leasing company and paid with a credit card. But the bank automatically put the check through again, and it was paid this time, along with the $35 NSF fee, and then his own bank charged him an overdraft fee for paying those.

    • Loias supports harsher punishments against corporations says:

      I swear this exact story was posted by a commenter a few months ago. I feel like it’s an urban myth.

  2. Oranges w/ Cheese says:

    What are these check things you keep talking about?

    • Rectilinear Propagation says:

      The paper things most of us use to pay our rent/mortgages and use as a back up if the debit card becomes damaged/lost/stolen.

    • outoftheblew says:

      The things you use to pay sole proprietors instead of large corporations when you don’t carry cash.

    • SOhp101 says:

      Some people just don’t know the meaning of sarcasm.

      Good thing Consumerist covered this. Most people don’t realize this is the case.

      • Rectilinear Propagation says:

        Yeah, it’s sarcasm, we get that.

        We also get that it’s still another version of the “Who uses checks anymore” comment that comes up anytime checks get mentioned.

    • Mulva says:

      The things you use to pay school fees – some schools and PTO don’t take CC’s for things like field trips and certain activities.

      Yes, schools take cash, but sending cash, in a backpack, to school, surrounded by meddlesome little hands that don’t always make the best decisions… I send a check most of the time. It’s seriously the main reason I still have checks.

      • jamar0303 says:

        Jeez. My school just does direct debit. Have an account at the designated bank, drop in the amount requested by a specific date, and the money is automatically transferred. Piece of cake. The only issue is that the school-designated bank, in my case, is way too small for the community it serves. Takes almost an hour of waiting in line to get anything done. So I have an account at another bank that offers free interbank transfers that’s much less busy.

  3. snobum says:

    This is why I love Ally’s overdraft protection. Links your savings account together and will transfer funds if needed – for free. It just counts against your monthly transfer limit.

    • pot_roast says:

      My oh so lovely credit union does that too… except that they charge a fee for it. The fee just happens to be equal to the previous NSF fee. How convenient!

      Ally (a bank) does it for free. My big credit union (Golden One) charges. Oh, snap!

      • tbax929 says:

        You mean there may be a bank that is better than a credit union? Who knew?

        • Max5695 says:

          Ally is the new name of GMAC(General Motors Acceptance Corporation). They accepted 3 bailouts from the Government. That is taxpayer money that went to bailout this company for their financial mismanagement. That is over $17 billion in bailout money.

          Ally has $59 billion of debt maturing over the next three years. They have not repaid their bailout money and it is possible that they will never be able to fully pay it back.

          It is estimated that taxpayers will lose at least $6 billion on the GMAC bailout.

    • Scuba Steve says:

      Just remember though, credit card protection on your debit account counts as a cash advance and you will be incurring interest from the day of the faux-verdraft. The yearly rate on those is usually the full 24%.

  4. attackgypsy says:

    I have a small, local bank. 5 branches in adjoining towns total. I’ve had their overdraft protection for years.

    And I’ve made mistakes in the past. The overdraft has ALWAYS kicked in. Every single time. It has saved me from bouncing a rent check a time or two, because the deposit wasn’t credited fast enough. I don’t mind paying the fee for that, which is the same as if I had just bounced the check to begin with.

    Guess I’m one of the lucky ones.

    • tbax929 says:

      The last time I had a small, local bank was over 10 years ago. I had a payroll check bounce (the guy that owned the bar I worked at was a total deadbeat). Anyway, the bank manager called me to tell me the payroll check had bounced and gave me five days to get the actual funds from my boss to cover the checks I’d written.

      I’m now with USAA and love them, but I doubt they’d do me such a favor. If you’re lucky enough to have a good, small bank you should definitely stick with them. The small bank I mentioned in my story above, unfortunately, got bought out by Sovereign years ago.

      • BridgetPentheus says:

        +1 if you’re lucky enough to have a small bank like that, I still do, they know who I am and if something goes wrong with my online bill pay the branch manager will track it down to find out why, so it doesn’t happen again and I don’t get charged…oh and no atm fees anywhere in the world, they even refund me if another bank charges me a fee, no direct deposit requirements and when my husband and I opened a joint account we both got letters in the mail personally written to us, actually signed by a person (you could see the signatures were the same person but actual different enough to to be hand written..ah customer service)

  5. The Horror... says:

    Here’s a thought, if you don’t like getting screwed over by “big” banks then you should find a nice community bank. However, regarless of the size of the bank, it’s your own fault if you spend money that you do not have. I have never had an nsf charge in my life and it isn’t because I’m rich. I simply know how much money I have and spend less than that amount. It’s really not hard at all.

    • Conformist138 says:

      Glad to know you are flawless, have never forgotten anything, never missed a decimal, or just otherwise had crap luck.

      We should all aspire to be you.

      (seriously, mistakes happen, and no matter who is at fault, it doesn’t mean banks should get to take advantage to the point where they can dig the hole several times deeper. I went over by ~$50 one time and the rearranged order of the transactions ended up giving me 4 overdraft fees instead of 1, causing me problems financially for the rest of the month. A $35 fee is my fault, but I steadfastly refuse to take the blame for the other $105 BOA effectively stole with an accounting trick.)

  6. Dutchess says:

    I’m still trying to make out this first sentance:

    “Just remember, even though starting this week banks can’t charge you overdrafts unless you opted into their overdraft program, they can still authorize overdrafted checks and automatic bill payments at their discretion and charge you a fee for it.”

    Seems contradictory.

  7. Not Given says:

    I don’t know if it will do any good but we wrote both banks we have checking accounts in and told them not to overdraft our account, period. If there isn’t enough money in the account they should decline the transaction whatever kind of transaction it was. We both signed them. Neither bank is one of the major ones, one just has a few branches and the other only operates in the one state.
    I can recall years ago when one of them (before it was bought out by the current bank) didn’t have any problem bouncing one of my checks. Once they temporarily lost a deposit when we borrowed money for paying taxes, then when the check was presented it bounced. I called the loan officer and asked him about it and he found the deposit slip in the loan file. I made him call the IRS and tell them it was his fault and they should run the check back through.

    The other time there was a guy with my husbands almost exact name except for the middle initial that always used counter checks, this was a long time ago. They couldn’t get him to order checks or to put his account number on them when he wrote them. My mortgage payment bounced because they had taken hundreds of dollars out of our account to pay his checks. They explained why it happened and I just told them we always ordered and used the printed checks with our account number on them so they better not ever take another counter check out of our account unless it had our account number written in. They should hit his account first since he was the one causing the problem, we shouldn’t have to suffer from it. I made them straighten out the deal with the mortgage payment, too.
    I have alerts out the a$$ set up to text me when either account drops below a certain amount. One of them even emails me every time a transaction clears, I griped out the other one for not having the same set up available. I check the accounts online several times a week. If a transaction overdrafts or bounces it won’t be our fault.

  8. PsychicPsycho says:

    I don’t understand. I don’t opt in to overdrafts or fees, but they can still authorize overdrafts and assess fees?

    • Rectilinear Propagation says:

      Depends on the type of payment:

      ATM withdrawals, debit card payments: you have to opt-in
      Checks, automatic bill payments: the banks can still change overdrafts

  9. sidkid88 says:

    So that’s why my bank called me about their overdraft protection program yesterday…

  10. james says:

    ATM Withdrawls? How can they “authorize” an ATM withdrawl and then charge you an overdraft fee?
    Wouldn’t that make your debit card a CREDIT CARD, and thereby subject to all the disclosures and constraints of “Regulation Z”?

    I think that any time the bank decides to loan you money, they should get your signature on a specific disclosure form to address the issue of APR and such. The effective interest rate of most overdraft fees (as compared to the amount “loaned” by the bank) is way up in the nosebleed seats of the upper upper balcony where the payday loan guys sit.

    Seriously, over-drafting when the bank could simply deny the transaction is a “Compliance Issue”, one that directly challenges the basic difference between debit cards and credit cards. Banks have tried to blur that line, and they should have been stopped.

    • Trinity336 says:

      I don’t think it matters how you use a debit card. Even if you sign for a transaction, the regulations that go with debit cards would still apply. By signing, it makes it a credit transaction, it doesn’t make the debit card a credit card. You still have the same liabilities that go with debit cards.

      Also, to do an ATM withdrawal, you use a PIN. That makes it a debit transaction.

      • Conformist138 says:

        So, the question remains: HOW can they authorize an ATM withdrawal if I didn’t opt in to their overdraft protection? Is the idea that I clearly looked at the balance and then decided then to opt-in by taking the cash anyway? I admit I’ve attempted to pull rent money from the wrong account, my ATM just said no and I felt like an idiot and selected the correct one. If my bank “authorized” that transaction and charged a fee for it, oh damn would I be pissed.

        • Trinity336 says:

          I’ve worked at two banks (currently working at the second) and neither bank allowed an ATM withdrawal to go through if there weren’t available funds. If the ATM the customer tried to use “saw” there wasn’t available funds, the ATM would decline the transaction. I’ve also had accounts at various banks, and all those banks had the same practice in place. Now as for whether the banks would allow a transaction to go through when a customer was paying for a purchase at a store is another story.

          Of course, why anyone would actually give a bank permission to overdraw his/her account is beyond me. I’ve had a few people opt-in to the service, with the customer completely understanding that he/she is giving us permission to charge them $30.00 overdraft fees if the debit card is used when there isn’t funds (the bank I work at actually wants us to explain the consequences to opting in and make the customer understand that it is optional; they aren’t using the shady tactics some banks have been using). It amazes me what people will sign up for.