Certainly no one likes to overdraw on their checking accounts, but when they do, they’d like to correct the problem just as soon as possible. There is protection with overdraft fees – Overdrawing an account can happen with amounts as small as $1 on up to hundreds of dollars. All it takes is for a check to be presented to your account that does not have sufficient funds to cover it, and the check will be rejected as unpaid. Your account then incurs additional fees and charges that you’ll have to pay in order to set things right with the account.
In most cases, overdrawing an account is certainly an inconvenience, but it can also add up to be an especially expensive one if it happens often. As an answer to that problem, most customers will elect to have an overdraft protection allowance added to their accounts in order to offset any problems. Once the overdraft allowance is in place, they no longer have to worry about checks bouncing, additional fees to cover the checks, getting charged fees from the vendors, etc. But even though overdraft protection does provide some sort of solution for the customer, is it a good idea to use that protection on a regular basis?
For customers who find it a challenge to accurately reconcile their checkbooks on a regular basis, overdraft protection may be an ideal solution. Especially if they often find themselves with a balance that’s too close for comfort, having the comforts of overdraft can likely ease a potentially bad financial situation.
With overdraft protection on an account, the bank will advance the customer’s account in bulk-dollar increments in order to cover the negative balance amount, which will also cover any checks that are presented for payment. So that means if a check amount is presented to the bank for $35.00 and there is only $20.00 available in the account to be used, the bank will deposit $50.00 into the account, leaving $15.00 as the balance after the transaction is finished. If the amount presented is over $50.00, the bank will deposit two increments of $50.00, totaling $100.00. The leftover amount is left in the account as the customer’s funds. The bank charges interest fees based on the $50.00 increments.
Customers need to really be careful when using this type of checking account method to manage their checking accounts. That’s because any overdraft amounts that are advanced to their accounts can quickly get out of hand in terms of balances, how much is advanced, what the interest rates and fees are, etc. By using the cash advance fees or overdraft protection method as a means to manage their checking accounts, customers are subjecting themselves to possible mis-managing their accounts and using those advancements incorrectly.
The best way to maximize the use of overdraft fees is to pay back the unused amount back to the financial institution as quickly as possible so as to avoid any additional finance charges to your account. Then it would be wise to also make any additional payments if possible towards the outstanding overdraft balance so that you’re paying down the account balance as soon as possible.
Another idea to use is to limit the amount of overdraft that you have on the account. In other words, limit the advances to a maximum of $500 or $1,000 so that you can better control how much is deposited into your account. This keeps you from having such high fees and interest rates, but you also have to be careful to watch your account to ensure that you don’t go over the amount of protection that you’ve placed on your account. Remember to treat overdraft protection as an emergency method and not as a checking account management system. By doing this you’ll avoid fees, potential bounced checks and you’ll be better able to accurately manage your account for better results.