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5 sneaky ways banks can charge overdraft fees

Some banks seem to be trying their darnedest to get you to overdraw your account. Here are 5 tactics they use, plus 5 ways to protect yourself.

By MSN Money Partner Jan 29, 2014 1:36PM

This post comes from Maryalene LaPonsie at partner site Money Talks News

Money Talks News on MSN MoneyOverdraft fees continue to be big business for banks, and that's despite a 2010 Federal Reserve rule preventing banks from automatically enrolling customers in overdraft programs. In 2012, banks pulled in $32 billion from these fees.

Of course, consumer money mismanagement contributes to all overdraft fees at some level, but banks aren't necessarily looking to help you stay in the black either. Instead, some banks have policies designed to push accounts into the red whenever possible.

Person withdrawing cash © Image Source/Image Source/Getty ImagesHere are five sneaky ways banks are trying to squeeze more overdraft fees from their customers.

1. Convincing you to opt in for overdraft protection

Let's start by talking about that 2010 Federal Reserve rule for a minute. Prior to its implementation, banks could automatically enroll customers in overdraft protection. Now, they must get customers to opt in.

However, it appears some banks aren't being entirely transparent about what customers are getting into when they sign up for overdraft protection. According to a 2012 survey by the Pew Charitable Trusts (.pdf file), more than half of those who had overdrawn accounts didn't realize they had opted into a program that would result in fees.

2. Processing largest payments first

Another sneaky tactic is reordering your transactions so the largest items go through first. A representative of the American Bankers Association was quoted in Forbes as saying some banks do this to make sure large, important transactions such as mortgage payments make it through the account. But it seems like a highly convenient way to also maximize overdraft fees.

In 2012, the Pew Charitable Trusts found that all 12 of the largest banks, in terms of deposit volume, either reordered transactions to run the largest first or reserved the right to do so. However, some banks, such as Citi, have since reversed course and are now processing transactions in order from smallest to largest.

3. Running deposits last

Along the same lines, some banks may credit deposits after they process your payments. That may be true even if you have a deposit being made electronically, such as a payroll direct deposit.

The law requires banks to make direct deposits available the next business day after the business day it's received, but there's nothing to stop them from running all your pending transactions and check payments before crediting the deposit.

4. Holding checks

The Expedited Funds Availability Act (.pdf file) allows banks to put holds on checks that could be as long as nine business days depending on whether your account is new, the size of the check and if you have a history of overdrafts.

That said, by law, banks typically must make $200 of a check available to you the next business day. However, that doesn't apply if you make your deposit via an ATM.

Either way, that isn't going to do you much good if you're going to be short more than $200 the next day. For example, if you need to cover $500 for the mortgage payment scheduled to hit your account tomorrow, depositing your $1,000 paycheck today isn’t going to help you avoid an overdraft fee.

5. Basing overdrafts on the available balance rather than the actual balance

This is perhaps the most frustrating sneaky trick banks use.

Let's assume your significant other uses the debit card and you realize that transaction is going to push your account negative once it posts. You gather up some cash and rush to the bank. Your deposit is available immediately, and you deftly sidestep that $35 overdraft fee. Or have you?

Before you start celebrating, know that some banks will charge overdraft fees based upon the available balance, not the actual balance. As a result, your actual balance may never go negative, and the bank could still charge you an overdraft fee because of that pending transaction.

How to protect yourself from overdraft fees

Sneaky bank fees can make it hard to keep your account in the black, particularly if you are living paycheck to paycheck. But here are a couple of suggestions to help keep your overdraft fees in check.

  • Opt out of overdraft protection. Even if you have already opted in, you can change your mind. Opting out means you might have the embarrassment of a declined transaction, but do you really want to pay $35 to save face in front of a store clerk you may never see again?
  • Balance your checkbook daily. In the electronic age, balancing the checkbook might seem like a quaint idea. However, there is no better way to track your balance and keep your account out of the red.
  • Keep a checking account cushion. Move some of your savings to your checking account to act as a cushion, but don't write that amount in your checkbook or account ledger. Pretend that money isn't there so you aren’t tempted to spend it.
  • Use a savings account for overdrafts. Some banks and credit unions will let you link your checking account to a savings account. Then, if your checking account goes negative, it will pull from your savings to cover the balance. Some institutions offer this option for free while others charge a fee. However, any fee is typically less than what you would pay for an overdraft.
  • Link to a credit card. Likewise, you may be able to link to a credit card to act as a backup to your checking account. However, use extreme caution with this method. If you already have shaky finances, the last thing you need is more credit card debt.

What do you think of bank overdraft policies? Are banks playing fair?

More on Money Talks News:

Jan 30, 2014 3:23AM
While in the military, I only had one venture into the banking world away from my military credit union and Bank of America not only screwed me, they stole money from me with all of their fees.  Our country forced me to get that bank account to prove I was a US citizen, even though I was in the military and just got back from a war.  Politicians, corporations and banksters - all sharks of the same stripe!
Jan 29, 2014 9:06PM
Jan 30, 2014 3:19AM
Stores process checks instantaneously, why can't banks.  Oh, banks are crooks, that's why!
Jan 30, 2014 1:01AM
That is my recommendation, use CREDIT UNIONS. You will not have to deal with all of the same possible issues that you can with commercial banks. Whatever you can have direct deposited, please do so. That money is available immediately. You will not have to play a float game with direct deposits.
Jan 30, 2014 3:58AM
banks suck...they lost the use of my unions are what banks used to be like...
Jan 30, 2014 7:26AM
A long time ago, I added a $500 buffer to my checking account register. I can go $500 into the red before I go overdrawn but I just treat it as zero. Since I have done that, the only overdraw I have had was when I missed putting in a decimal point into an online payment. $140.00 turned into $14,000. Luckily, I was able to get my bank to reverse the fees even though it was my fault.
Jan 30, 2014 7:15AM
Not only the fees, but credit card interest. Now the banks are receiving money from the feds at 0-2% interest. Yet they still charge 10-20% on your credit card. We should have stopped the "Bail Out" in its tracks and let the banks go belly up. I wish I had the money to buy controlling stock in BoA, Wells, Chase, and Citi, so I could fire the CEO & Board of each bank. Not one lost their job.
Jan 30, 2014 12:03PM

I have no need for overdraft protection, since that will never happen. I always balance my checkbook after any purchases by check or debit card (which there are no annual fees and ATM transaction fees). No need for credit cards. I'm also not a fan of maintenance fees or promotional offers. My bank serves only one main's safer than a mattress or coffee can.

Jan 30, 2014 1:00PM
I only use my checking account to pay on line bills and after the bills are paid I pull out the remaining balance and then pay cash for anything during the month.  My account costs me zero each month.
Jan 30, 2014 3:13AM

Try this I hand deliver my mortgage payment which is always six months ahead just in case something at home happens. Stop using ATM machines, when will some folks wake up about banks, they will always find a way to make money off of you. get money wise. Stop living in the fast lane and using all of this electronic junk, see no matter what banks will win, just ask the feds they would never let them down they rule the world.

Jan 30, 2014 1:42PM
The banks have all sorts of traps for their patrons.  A bank we no longer use, charged $25 a year to have an overdraft account.  It charged $39 a day for overdrafts.  It held large deposits for over a week, even though the check cleared the bank on which it was drawn the same day of the deposit - result?  Overdraft.  When the bank assured us the money was now available, we informed the person who had our check rejected (our landlord who is an attorney) they could now deposit the check and it would be honored.  Guess what?  It was rejected AGAIN!  When confronted, the bank president apologized profusely, but the damage to our credibility had been dinged.  A couple small overdrafts can quickly add up to hundreds of dollars for those who work minimum wage jobs and only get paid every other week.  Yep, what a scam some banks play on unsuspecting victims.  I think the best idea put forth by the writer of this article is to see if you can hook your checking to your savings account and keep a good cushion there to cover any contingencies.
Jan 30, 2014 1:14PM
It looks as though banks base these fees based on the actions of the largest base of their customers. Many people pay their bills and make deposits at the last second. Part of that is caused by the economy and they are living close to the edge fiscally, read that as paycheck to paycheck. Some grew up this way and don't know any better. Maybe it's the excitement of beating the clock or system. Banks should change some of the ways the look at your accounts, payments, and withdrawals. They should not manipulate the order and size of deposits to trigger any type of fee. The other way they get a ton of money is the restrictions on your accounts and the requirements to avoid those restrictions. Chase is horrid with this method. I had a money market with a bank, it paid a good rate, and then Chase bought the bank. After the sale Chase began to lower the rate until it got to way less than 1%. I went online and visited several banks and credit unions to see if I could get a better rate and found at least 7 close by that paid at least 2x-4.5x as much with lower minimums and no other restrictions. I went to Chase to see if they would match any other banks and their BEST offer was 0.9% IF I opened a checking, opened a savings, had a monthly direct deposit, and had a monthly automatic transfer between the checking/money market and the savings account. PLUS, I had to have a high minimum in all 3 accounts. Checking-$1,500, Savings-$1,000, and money market-$75,000 just avoid a monthly service fee which would have been higher than the interest payment. That's a lot of money just sitting in a bank basically doing very little just to earn 0.1% more on a money market. It took almost 4 hours for them to cut me a cashier's check. I felt like I was at a used car dealer getting double and triple tag teamed by the account clerk, account manager, and the branch manager. They acted like my money was theirs and seemed insulted when I told them that the bank works for me and not my money working for them. Basically I was supposed to feel honored to be able to say I had money in Chase. Their words, not mine. I literally went across the street and was able to open another money market that paid almost 5x as much, no other restrictions, fees, or bundles with a minimum balance 3.5x as small as Chase. Just be proactive with your money. Don't assume that you are the only one looking at your money. Changing financial institutions is a hassle but it's a little like comparing and changing insurance. It creates competition and saves you money.
Jan 30, 2014 11:59AM
Andrew Jackson did it , We the People can do it to. KILL the BANKS! 
Find a Good local Credit Union and discover that less is your pocket 
Power to the People
Jan 30, 2014 11:37AM
People keep talking up credit unions. I had an account with one for a long time. Guess what? They gave all my savings money to the state of California. It would have have been better to mail me the money as I earned it. You can get back if you deal with that state. What the hell is that!? Fees are one thing and closing your account and giving it to the state is another.
Jan 30, 2014 1:13PM
Talk about hidden fees.  Don't ever rent a car from Dollar rent a car at Orlando Airport.  When I asked about all of the extra, $!20 greater than quoted and documented.  They told me it was my fault.  They deserved to be deserted and do a GOB.  Thevies.
Feb 4, 2014 1:05PM
I use a small, local community bank. Even during 2008 and 2009, this bank had no issues. If you're not too big to fail, then I guess you tend to be a lot more responsible.
Jan 30, 2014 12:25PM

let me tell you people something.......banks are NOT crooks.  when a bank has money sitting at the federal reserve and THEY are making .25% on that money and then THEY pay .15% interest on what a consumer has in their money market savings account and then THEY pay .11% for FDIC insurance......well, THEY are NOT making money like people think THEY are.  i am sick and tired of people trashing banks when they don't know EVERYTHING.  they complain about fees but don't take responsiblity of their own misuse of thier money.  they complain about interest earned on their accounts........enough is enough.  banks pay federal unions are under some kind of tax shelter that allows them NOT to pay federal taxes.  how is that fair?  so, until you know all the info (and i am not even close to knowing all of it) quit bashing banks.  THEY ARE FOR PROFIT. 

Jan 30, 2014 4:09AM
I HOPE the CROOKED-LYING Banks of Discover Card and JP Morgan COLLAPSE... Then I WANT to see the United States Economy COLLAPSE as well.......Let UNCLE SUGAR, and BLACK BASTARD Obama-MULATTO BAILOUT that one with MY TAX MONEY...... I HOPE China COMES a CALLING for THEIR MONEY and UNCLE SUGAR CANNOT PAY UP..... Let World War III BEGIN!!!! DAMN!!! CROOKED-LYING **** America....... May it ROT in HELL!!!!!
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