A few years ago I realized my business was getting too many NSF checks, and the percentage made good was low. I stopped accepting checks. There was some local publicity about the economy, recession, etc and the county DA visited and asked that I reconsider. I didn’t and other local businesses have since followed my lead.
I suspect that the bulk of overdrafts these days are on debit cards. People don’t write that many checks any more, and there is a large population that does not have access to credit cards.
Or they choose not to use then, despite the obvious advantages.
I wonder just how they’re counting that; I have my checking account, and my savings account, and if the checking account overdraws, the balance is made up from savings. In the unusual event that this happens, it’s usually a timing issue between an automatic debit for mortgage, car note, or some other bill, and direct deposit, combined with some sort of unforeseen expenditures that lower the usual cash cushion I try to keep in checking.
So I don’t bounce a check or incur a fee, but I suppose technically I was “overdrawn” according to the bank, even if I did have 5 figures in savings.
I agree, I’d bet the majority of overdrafts have nothing to do with a check. The way it often works is this: a person has an recurring automatic debit charged to their account (car insurance bill or what have you) however, it sits in ‘pending’ and doesn’t get subtracted from available funds for a few days. Financially ignorant person then makes a bunch of small purchases over a few days on his card, thinking he has the money to cover them. Then the auto payment hits and it is placed ahead of all the small purchases in the processed transaction order, which results in each of those little purchase he made counting as individual overdrafts. This also means he essentially pays: $35 for a pack of gum, $35 for a can of coke, $35 for a twinkie, etc… Yeah that’s happened to me a few times in my past.
I’ve only had one overdraft in my life, it was while in the US (where I’ve lived 5 years of 46) and it was due to a practice on the bank’s part which was specifically designed to produce overdrafts: when there were several movements due on the same date, they did the drafts before the inputs. Thus, that overdraft lasted a matter of seconds until they added my salary, but I still got hit with fees.
Anecdotal evidence alert.
I knew a couple in college. She was far from the brightest bulb in the bunch. She did have a job though, and worked there as a decent employee, but never seemed to have the money for her share of the apartment that she stayed in with her boyfriend and another couple. The guy would feel bad and cover her part of the rent. This went on for a few months and he started wondering, what the heck is up? What is she spending all her money on? So he asked for her to print one of her bank statements so he could look.
Well, she had never bothered to look at her bank statements or anything related to the bank. She just figured she was perpetually broke for no reason at all. He discovered that she was thousands of dollars in debt due to overdraft fees. It started with a single paycheck. It gets automatically deposited, but she didn’t check when the funds cleared. So she spent the money she didn’t have yet on little separate transactions like a sandwich, some lip gloss, a pack of toilet paper. The bank smacked her with a succession of overdraft fees and withdrew the fees from her paycheck when it cleared. She assumed the still had the money and continued to do small purchases throughout the week, going into more overdrafts. The next paycheck went totally to the fees. And this continued, over and over, every week buying everyday items and racking up overdraft fees and the bank taking her paycheck every week to pay for the fees. Obviously the fees outstripped her paycheck quickly so she was thousands in the hole with the bank.
The guy was dumbfounded that she never even once looked at her bank account, called the bank, opened her mail, or anything of the sort. So moral of the story is…don’t be so incredibly stupid, I guess. He broke up with her after that.
She must have accounted for thousands of those overdrafts in the statistics.
Yeah, the client in the first example had a bank that charged $5 if it the account negative for more than a week. The client in the second example really was ~340 rejected items because of how that bank worked.
On average, I overdraft a few times a week so maybe I’m skewing the results. I haven’t wrote a check in years and have never bounced one, but I tend to overdraft my checking account quite often with my debit card. The bank automatically transfers the needed amount from my savings to my checking and charges a $3 fee. If I ever need to pinch pennys I’ll probably be more careful about that.
Is having tons of overdraft fees and being bajillions in the hole a reason why some people are banned from certain banks? I had a co- worker tell me she’s not allowed to bank with Chase Manhattan when I suggested she get a starter credit card through them to build her credit. I didn’t ask her why since her finances are none of my business, but since I’ve heard other people say they’re not able to open an account with X bank, I figured it was due to debts.
Chase is actually very good about overdraft fees however. I can overdraw my account, but will not be charged a fee if I deposit money before the charge switches from pending to completed.
I think a lot of people also don’t realize that they can call their bank and either get a complimentary removal of the fee if it’s a one time, rare, incident or sometimes the bank is willing to consolidate the overdrafts into one fee rather than separate fees for each transaction. Or waive the fee entirely in extraordinary circumstances. Chase has refunded me on the rare occasion that I’ve had a fee (such as when my paycheck was processed late) and TD Bank gave me what they called a complimentary refund for the fee, since it was caused by them processing a transaction well after I actually made the purchase.
As others have said, I think it depends on how you define overdraft. My checking account is set up to pull from my savings account if it overdrafts. I don’t get charged for that transfer unless it happens multiple times in a month (can’t remember how many off the top of my head). So, I sometimes charge a large purchase to my debit card, knowing that I’m really paying out of my savings. It just keeps me from having to transfer the money myself. That is recorded on my statement as an overdraft and would probably show up in these statistics, but it’s not causing any additional financial costs to me.
That’s what my credit union does as well. I usually transfer cash myself if need be, but sometimes I forget or just figure the $3 is worth it.
My pulls from a line of credit up to the amount in the line of credit ($5k) - no charge at all unless I were to hit that 5k (in which case I’d really overdraft - I’ve never done that). And I “overdraft” all the damn time.
I pay the line of credit with my HELOC (lower interest rate) and then pay that off out of savings when it reaches a number I’m not comfortable with (and I don’t risk hitting that ‘maximum number of transfers out of savings’ number).
I’ll overdraw my account maybe once per year, so that’s not a lot. I get charged $35 per every overdrawn item, but in my experience if I cover it right away and call my bank, they’ll refund at least half of the overdraft fee. (I get email alerts crom mu bank, so if I’m overdrawn, they notify me right away.) The last time I bounced one and covered it, I called my bank and they refunded the entire $35 to my account. So if you bounce a check only rarely, it doesn’t hurt to call your bank and attempt to get the fee refunded.
This shocks me. I had an overdraft in 2006 and am still recovering from the shame.
We just learned what my credit union does with an overdraft.
My brother accidentally overdrafted (chose the wrong account when paying a bill) and, as is his way, didn’t do anything about it. He waited to see what would happen.
The credit union first tried to get the money from his savings account, which was also dry, so since my name is on his account (for convenience, long story) they just took the money out of MY account and sent me a receipt. Wahoo! Luckilly, I had the money. I usually do have money but it happened at a time when I was running quite low.
In the end, his bill did get paid without any bouncing and neither of us got any fees. But, still…
Credit unions be crazy.
I know people who deliberately write checks they can’t cover *every month. * I’m considered quite the asshole for not giving money to cover this.
Don’t worry, banks LUUUUURVE it when you bounce checks, it’s called “fee income.” In fact, they always pay off the largest bill first when you bounce a check, in hopes of making you bounce subsequent checks for small amounts … same $35 fee per bounced check, regardless of amount … ka-ching!
It’s a racket that banks do to make money. Costs them less than two dollars to process an overdraft … ka-ching!
It’s not a bug … it’s a feature!
My last/only overdraft was 8 years ago. I paid a few large checks at the same time, then ended up with about 5 overdraft fees over 3 days due to it.
Many overdrafts are due to something other than paper checks. Recurring direct debits are a common culprit, but don’t discount pre-authorizations that change to different amounts after being authorized. Like when you go to the gas station and get $50 worth of gas. If you swipe at the pump, the gas station may only put a $1 hold on your debit card. Then a few days later, the full amount clears. Someone who doesn’t scrutinize their account balances might take such a hit.
This is almost never done anymore. Predatory Payment Processing Has Largely Stopped, But Remains Legal | HuffPost Impact
I overdraw my checking account fairly regularly, but it doesn’t matter or cost me anything. I bank with Schwab and have a brokerage account with them, too. If my checking goes negative, they automatically pull cash from the brokerage. I use my checking account as more of a tool to be aware of my spending.