Overdraft fees: How They Work
We looked into the four fees for an overdraft in 16 of the biggest U.S. retailers. These are the most common charges charged by the biggest bank across the U.S.
These are the Four Different Types of Fees for Overdraft
Although most banks charge the same fees for all, they do apply different rules in the way each fee is billed and how it is paid. The various fees associated with an overdraft comprise some of the highest fees on checking accounts that banks have to charge.
In addition to the usual overdraft fee, there is the non-sufficient money (NSF) fee as well as the overdraft protection fee and the extended fee.
1.) Overdraft Fee
The most obvious cost with an overdraft is the simplest to describe overdraft fee. It is charged every time the bank authorizes an overdraft that is greater than the balance available.
Most banks do not charge an overdraft charge if you are able to overdraw for not more than 5 dollars.
Every credit union and the bank has its own restrictions on the number of overdraft fees they can charge per day. It is common for banks to charge 4 to 6 fees for overdrafts per day for each account, although some exceptions allow up to 12 per day.
2.) NSF Fee
The non-sufficient funds (NSF) fee is charged each when a bank decides to deny a transaction that exceeds your balance. The majority of banks charge the exact amount for overdraft and NSF fees. These two are usually listed as a single figure on the fee schedule.
Because banks must decide between approving or denying an overdraft, an overdraft could cost either an overdraft charge or the NSF charge, but not both.
However, some banks will differentiate between the two charges when they add up the maximum daily amount. U.S. Bank, for instance, charges up to four overdraft charges each day but will count the maximum amount of NSF fees in a separate way, which means you could be charged eight distinct fees per day.
3.) Overdraft Protection Fee
Also known as the transfer charge, a security fee will be charged each time the bank arranges the transfer of funds from one of your accounts, usually an account for savings — to pay the overdraft. Legally, banks are not able to provide overdraft protection as an automated account service which is why customers must decide to enable the feature.
Many online banks offer overdraft protection at no cost, however, in the case of the standard bank, you’ll have to pay between $10 to $12.50 for each transfer.
While this may help you save money compared to having to pay overdraft or NSF charges, if the bank’s policies do not provide obligatory notifications for every transfer, you may lose the savings you have before you even realize what’s going on.
4.) Extended Overdraft Fee
The last penalty that is included in the penalty for overdrawn accounts is an extended fee. It is also known as an extended or sustained overdrawn balance fee. It is triggered when you have your account balance negative for a set amount of days.
In most cases, you’ll have five business days or seven calendar days to rectify your balance before the overdraft charge can push your account into the negative.
Certain banks charge this fee every five days and some go so that they assess the cost each day until you get your balance to a level that is above zero. The maximum amount of overdraft fees that you are able to incur will vary by bank.
Beware of Overdraft Fees
How can you avoid the cost of overdrafts? The easiest solution is to not spend more than you can afford. However, mistakes can happen.
‘If you’re beginning from scratch the best way to avoid fees for overdrafts starts with choosing a good checking account that has the most generous fees policy.
If you’re not planning to move or open a brand new account There are a variety of tips you can follow to reduce the chance of being victimized with an unexpected overdraft.
Monitor Your Balance
Nowadays applications for mobile banking have become standard, among their main tasks is to notify you of the status of your balance.
If you are familiar with the app of your bank and regularly monitor the balance frequently it will be possible to determine the amount you have for spending at any given time.
If keeping track of your balance regularly is too big of an obligation, you can make it easier by doing it only prior to big purchases.
But, it is important to remember that if you’ve set up any automated transactions that you have set up, like transfer payments or bill payments from savings accounts, you might not have the opportunity to check your balance manually prior to the transaction taking place.
Know the timing and the order of transactions
A very popular way that overdrafts occur is when a client takes out money that hasn’t yet been received into the account. The issue here consists of two components: processing the order and availability of deposits.
Banks must follow a particular sequence when they make withdrawals and deposits to the balance in your account.
They also have guidelines on how fast you can access funds according to the method you choose to transfer the money to your account.
The general rule is that you can anticipate direct deposits, cash deposits, and wires that are incoming to process before withdrawing them the same day.
So that you’re depositing enough funds to pay for the expenses of the day and you are not in danger of an overdraft scenario.
However, it is important to remember that checks need at least one complete working day before they appear in your account balance.
Based on a variety of factors, including the amount of your check, the location of the check, and the history of your account The bank could take up to an entire week to have the total amount available.
Take a look at the Fine Print
You must take the time to learn about your bank’s overdraft policy. The deposit account agreement as well as the personal schedule of fees that you get when you open your account ought to cover fee limitations, recurring fees, and other irregularities within the bank’s regulations.
You can request additional duplicates of these papers via the internet or directly with your bank.
Other important considerations
- Does the bank inform you whenever an overdraft occurs or is the fee for an overdraft a “silent” fee that might surprise you?
- Does the overdraft charge only apply to written checks and automated transfers? Or is it also applicable to debit card swipes as well as ATM withdrawals?
- How long will your account remain overdrawn prior to the extended overdraft fees kick in and how long until this fee is charged the second or third time?
If you are unable to find the answer to these questions within the documents, you should contact an agent of the bank on the telephone or by appointment to discuss the situation.
Use Overdraft Protection and Caution
Overdraft protection isn’t an effective way to reduce charges however, with careful handling it could help cut them down: paying the usual 10 to $12.50 per transfer that is protected is still better than getting charged a $35 overdraft or NSF fee.
Additionally, using overdraft protection can ensure that your transfer isn’t denied, which could occur if the bank chooses to refuse a normal overdraft.
But, overdraft protection is costly in the event that you make excessive use of them. The service charges an amount each time it’s activated, and you’re also spending money from the savings accounts or credit line to pay the overdraft.
In some cases, it is possible to encounter savings account charges when you use them to protect against overdrafts more than five or six times in a calendar month and your bank could apply a penalty to you for over the limit set by the federal government for withdrawals from savings accounts.
Banks are legally obliged to provide overdraft protection as an opt-in feature instead of an automatic option. So If this type of arrangement appeals to you, you’ll be required to call your bank in order to set it up.
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