Bank overdraft happens whenever you execute a debit, check or credit card transaction and there is no sufficient balance in the checking account it is connected with. Bank will immediately reject the transaction whenever an overdraft happens.

You can protect yourself from frequent overdrafts by enrolling in an overdraft protection program offered by the bank. Whenever a merchant or an individual hits your checking account and there is no sufficient balance in your account, your bank or the credit union will cover the overdraft amount by paying the required amount to the merchant or the individual. The bank will usually charge a fee for such services. And if there are multiple transactions in a day, you might end up paying a hefty amount to the bank in overdraft charges.

In most cases, it is the banking customer who has overdrawn his bank account should be liable to pay for the fees to the bank, provided he has been informed of the fees. But if you dig a little deeper, the reality is a bit different.

Many banks usually do transaction stacking, where they process the larger transactions first in a given day before processing the smaller ones. As a result, it will increase the chances of the account getting overdrawn because of insufficient funds and thus more fees being incurred. This is one easy way for the bank to increase their fee based income. It can cost up to $25 billion per year business for the banks.

Many a times, people find it confusing to understand the bank online statements. You might have to manually track and do back-of-the-envelope calculations to figure out the actual account balance at any given time. Even though you might see a positive balance in your account, but because of uncashed checks, pending credit card transactions, your balance will run low or into the red in no time, and before you realize, the bank has already charged you a fee for the overdrawn transactions.

Once there is an overdraft, you will notice a charge in your statement. It can be $20, or $30 or even $35 in the red. First you have to clear this fee to the bank before your account balance turns black.

• So how to control these bank overdraft charges? Follow these tips and you will be able to keep a check on your account.

1. Whenever you incur any overdraft charges, you should call the bank and clarify it. It is worth a shot, especially if you are a new customer to the bank or if this is your first overdraft in a very long time. If you are not satisfied with their services, you can close this account and open a new account with another bank. There are chances that they might waive off the fee because they don’t want to lose your business.

2. Contact the bank’s customer service department and request for a refund of the entire overdraft fee if you notice any error by the bank that led to an overdraft.

3. Shop for a bank that does not charge any overdraft fee.

This entry was posted on Saturday, April 18th, 2015 at 5:28 am and is filed under Banking. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.