The definition of an Overdraft is " A draft for more than the balance in the account on which the draft is drawn. A bank may honor an overdraft, depending on the importance of the customer and on prior arrangements (if any) to cover overdrafts."
Whenever you spend more money than you have in your bank balance, the bank has the option of paying the transaction for you. When they do so they then charge you what is called an Overdraft Fee. I am sure that most of us have heard this terminology before, unfortunately. So at the end of the transaction you now owe the bank the money they paid on your behalf to complete your transaction as well as the fee. Overdraft fees usually run about $25 - 35 per occurrence. Contrary to popular belief, Overdraft Fees do not accrue interest.
I am sure we have all stormed into the bank at least once concerned about an Overdraft Fee and after being given a brief explanation of the charges were left feeling powerless and taken advantage of. I want you to know there is a way to take some of your power back.
First, don't spend down to zero. Create a cushion of at least $25 - $50 in your checking account so that if when out and about you overspend by a small margin, you go into your cushion and spend your reserve money, not the banks. Replace any reserve you spend and remember if you only have $50 left in your account, you really have zero.
Next, don't rely on the ATM Machine to tell you what your balance is. People find it hard to believe but it is important that you know that the ATM does not always have the most current account information and this is why. Let's say I have $100 in my checking account. I decide to go to my local supermarket on Tuesday morning and spend $58.50. Then I go to the ATM to check my balance on Wednesday afternoon. The available balance I see may not reflect the $58.50 that I spent in the supermarket. It is very likely that my balance will still say $100. If I decide to withdraw that $100 to pay a bill, I just set myself up to receive an overdraft fee. This happens because the bank has no control over when a retail establishment is going to tell them that you went there and spent money. The supermarket could contact the bank on Tuesday or anytime after that to collect their $58.50 from your account. No one controls that but the supermarket. The bank can only give you the information they have no more and no less.
Finally, protect yourself by keeping some kind of paper record of your spending. I don't care whether it's a check register (the best option) or even a tiny notebook you carry in your purse, but do something. Keep a running total from your last bank deposit. Our days are filled with so many tasks these days, make it easier for yourself to succeed by taking a moment at the register to jot down what you're buying, how much you are spending, how you are paying for the item and the new balance.
We don't realize how many times a day we pull out that debit or credit card to pay for something we need or want. By taking these few extra measures, you can save yourself money, disappointment and a furious trip to the bank. I guarantee you your bank is already making more from your money than you are, don't give them any extra.
This is Tanai of TMC Financial Consulting encouraging you to remember that,
Your Money Is A Tool. Use It Wisely.
If you would like to read more unbiased easy to understand financial information that can help you immediately, join my new group on BBWO, Your Money Matters. See You There!
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