5 Sneaky Ways Banks Make Your Account Go Into the Red

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Overdraft 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.

Here 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, 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 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? Tell us what you think in the comments below or on our Facebook page.

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Comments & discussion

We welcome your opinions, but let’s keep it civil. Like many businesses, we reserve the right to refuse service to anyone. In our case, that means those who communicate by name-calling, racism, using words designed to hurt others or generally acting like an uninformed bully. Also, comments that include links to email addresses or commercial websites typically aren't posted. This isn't a place to advertise your business.

  • Y2KJillian

    In past years, seems we’ve been hit with most of these. Since we began keeping about a thousand extra dollars in our checking account, the inexplicable (until now) overdrafts have stopped. Cheap at twice the price. 8)

  • L Beach

    You may opt out of Overdraft Protection which is certainly a good idea when it comes to POS (point of sale) Debit Card transactions, avoiding a fee. However, this also means that all your automated electronic payments – your mortgage, your insurance premiums, your auto loan payment, etc. – could be declined as well. In this case you will be charged an Insufficient Fund Fee ($35 in the example in this article), plus you could be on the hook for other fees once your Mortgage company finds out your payment was declined. Are you OK with that? Better option: Opt for a Selective Overdraft Protection which will decliine POS transactions but pay ACH/Electronic payments and checks.

  • Kathy Steele Dias

    My banks policy is they won’t charge an NSF for an amount under 5.00.The sneaky part is its not if you are overdrawn less than 5.00 is the amount of the check! I had a 25.00 check come in that left me -5.59 in my checking.The bank charged 35.00 because the amount was 25.00 not the -$5.59

  • Johns.Opinion

    I pay no fees. Why, I know how to manage my money. The real issue here is not the banks, it the careless people who use them.

  • Linda Ruttschaw

    I for one take offense at Johns better than you opinion. Fees are so much more than just a math error or overspending! We had a bank that was fine and fair, then they moved. They choose a new bank and said we would like it, yeah right. We have direct deposit on our checks but now are charged a fee unless we send them all our receipts for debit and checking transactions. If you want to move money around between accounts there is a fee. Our checks hit the bank on given days but if they want to take a fee out the day before there is an overdraft and the fee. Before your picture could be on your debit/credit cards with no fee not any more now there is a yearly fee. Every time we turn around there is a fee. Needless to say I have moved my account and my husband is in the process of moving his.Almost every time we went in there were people jumping ship over their fees. Give me a break why would they need all my receipts (what if I needed one) they have all the transactions already, they say this is better as there are perks you get that offset their monthly fee. It is my money if I want it someplace else (within reason, like maybe every couple months I need to move it from one account to another, why should I have to pay them for doing their job).