Logging into my USAA accounts recently, I noticed a poll on the sidebar with this question:
How many overdraft fees did the average household pay in 2009?
- 1
- 4
- 9
- 13
Would you be surprised to learn the answer was 13?
“…. the average U.S. household with a banking account incurred nearly 13 overdraft fees in 2009, according to management advisory firm Bretton Woods Inc. Those fees cost Americans a whopping $38 billion they could’ve spent elsewhere.”
To quote Keanu Reaves,
“Whoa.”
Do you have trouble with overdraft fees? Okay, wait a minute. You don’t have to answer that. Let’s start over.
How do you avoid overdraft fees? I know, I know… Keep track of your spending. But things happen, and they’re not always your fault. I worked at a bank for a couple of years, and I was astounded at how many people thought it was the bank’s job to keep track of their balance for them. But I also saw how many unintentional human errors are committed on a daily basis: double postings, by the merchant or bank; unauthorized automatic drafts; pending debits that somehow don’t fall off when they’re supposed to…
Not to mention the many errors that you and I are capable of committing: forgetting to account for ATM fees (or for ATM withdrawals, for that matter); not communicating with The Spouse on daily transactions; forgetting to write down some random paper check you had to mail for some random payment…
Overdraft Protection is the obvious choice, preferably with a savings account (that has money in it). It’s good to have a back-up as well, such as with a credit card.
I heartily believe in Overdraft Protection myself, not only because You Just Never Know but also because at times when we travel or are otherwise moving, I covet that feeling of knowing that bills will be covered even if I’m not on the ball. Especially when we were in the middle of a trans-continental move with small children, this feeling of security was measureless: I simply didn’t have the time or energy to make sure things were happening on the account like they were supposed to, for days or weeks at a time.
What’s your Method of Avoiding Overdraft Fees? Overdraft protection? A large cash buffer in your checking account? Checking your transactions and balance with the bank every day, online or otherwise? Do tell. Someone might be reading this who needs your help.
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{ 15 comments… read them below or add one }
We have ODP on our account but have never used it. I keep a minimum balance of $1000 in the account at all times so we are never charged any bank fees. If necessary we could dip into this as an emergency fund and just pay the fees until we get back over $1000 again.
I use Excel to plan in advance all our spending and income with a running projected balance. At the moment it’s set up through to December 2011. We get paid on alternating weeks, our mortgage comes out every other Monday, the phone bill automatically goes on the VISA in week 3 ever month, we each fill our gas tank every week, we buy about the same amount of groceries every week. Really most of our normally spending is completely predictable so there’s no reason for any surprises. By cutting out all nonessential spending we live on about 55% of our take home pay. Every Friday once the pay is received and that week’s charges to the credit card have been paid (yes paid off every Friday) then I skim off everything above ~$1100 and tranfer it to our retirement accounts or make an extra mortgage payment. If I write a check which is rare, I add a row to the spending plan and the balance goes down. In other words the minute I write the check I assume the money’s gone and that’s reflected in the balance on my spreadsheet. If the check doesn’t clear by Friday I move it to the next week and continue doing that until it does clear. Virtually all our spending is done on the credit card and is paid off every week. With groceries, gas, insurance, phone, cell, internet and miscellaneous spending all earning points we earn enough travel miles for 4 flights to Europe every 2 years. By having virtually all our expenses going on the credit card it means I can hold off the payment until the paycheck is received every week. That way payment never goes out ahead of the pay arriving and there’s no reason to ever go into overdraft, or below $1000 where I’ll cause the bank fees to kick in for the month. I carry my debit card and $10 cash at all times for those few times when I can’t use my credit card, but the cash gets dusty and I’ve only used my debit card once in the past year.
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jolyn Reply:
August 25th, 2010 at 8:58 am
I am loving your system. I think it is excellent for people who are in control of and are consistently tracking their spending. The evils of credit cards are subjective, I think. For awhile there we were hearing things about credit card companies starting to “penalize” users who never kept a balance for them to charge interest on, by charging an annual or some such fee. But I think they quickly learned that they would simply lose these users, b/c they are not the type who “need” a credit card. At least, I haven’t heard any more talk about these possible fees lately…
I have been contemplating looking for a good VISA card to get: I’d like a VISA b/c it’s better for traveling overseas, but currently we just have a Mastercard that we like. You have given me really good food for thought and I’m wondering if you would recommend the card you use? For points that carry over and don’t have blackout dates, etc? You can email me if you’d rather: jolynatbudgetsarethenewblack.com.
Thanks so much for your comment!
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Best way to not overdraft is to always know how much money you have in the account before you spend. And make sure you keep a surplus in there too.
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Hi,
I really like your blog. I am a casting director for a docu-reality series sponsored by the USO about military families awaiting the return of a loved one stationed overseas. This series is about how the family prepares for their service member’s return and highlights the bravery, sacrifice, and courage military families need to have. I would love if you submitted to be part of the series. You can find an online submission form at http://www.roadtoreunion.com or email me directly at roadtoreunioncasting@gmail.com for more information.
Thank you so much,
Chris
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jolyn Reply:
July 27th, 2010 at 9:27 pm
This looks like a great documentary! My husband has already returned, though (thankfully!) so it doesn’t apply to us at this time. Maybe it will to someone else reading this!
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I want to add that I was going for funny in my comments, but realize that I came off sounding like some terrible controlling wife. It wasn’t that way at all. My husband and I just realized that it wasn’t working for both of us to be debiting the same account so we came up with a better plan for us.
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I use a zero based budget, so I spend every paycheck on paper before I get it. When payday comes I make all the transactions that I wrote down. This means that my account will go to zero. Then I do not use my account until the next payday. It was scary at first, but it isn’t a hard concept.
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jolyn Reply:
July 22nd, 2010 at 11:56 pm
Do you still check your balance/transactions occasionally? I was astounded during my job at a bank how many errors are made — and not always by the account holder! Double postings; fraudulent transactions; merchant errors… It made me so paranoid that I still check my account regularly to this day.
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Like many others, “THIRTEEN!?!?!?!?!?!” Wow that’s just H O R R I B L E! I’ve NEVER had an overdraft fee! Don’t people check their bank accounts often?
The U.S. REALLY needs to start teaching personal finance in public school. Honestly, it’s a HUGE part of EVERY person’s life… Why are we teaching them the THEORY of evolution and not how to avoid hundreds of dollars in overdraft fees!?!?! Backwards thinking…
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jolyn Reply:
July 22nd, 2010 at 11:54 pm
Funny you say that, the State of Ohio is just starting to implement a financial education course for its high school graduates. Schools are still working up the curriculum, so it won’t be offered until the year after next (where we are, at least).
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myfinancialobjectives Reply:
July 23rd, 2010 at 3:09 pm
That’s awesome news! I hope more states follow suite!
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I currently work for the bank so I check my account daily just to keep an eye on it. What has really helped us here lately though is having a budget, sticking to it and using cash for things like gas and groceries. Nothing gets spent from our accounts unless it has a name.
And just in case of an error – we have savings overdraft protection. If I make a mistake (or the bank or a business does) then the money sweeps from my savings account to my checking account automatically. Easy peasy. And no worrying for me!
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I check my balances daily and operate (right now) on a cash only for my variable expenses. It helps immensely.
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jolyn Reply:
July 22nd, 2010 at 11:46 pm
Checking balances regularly is key. It’s not only about spending responsibly, but also about being aware of anything “funny” going on with your account.
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I check my balances a lot. We had 2 separate accounts for many years, 1 for bills, 1 for food/spending. In my entire 32 years of marriage, I am sure we have not had even 13 total!
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jolyn Reply:
July 22nd, 2010 at 11:45 pm
I agree. Even though I hated my bank job, it taught me so much and made me sufficiently paranoid that I still check my balances almost daily!
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This is probably the only area of life where being an undiagnosed OCD type has come in handy. I do keep a “reserve” of money in the checking account. I have several catagories in Quicken that I use for saving for planned purchases. On January 1 of each year I use “Christmas” as a transaction with the date that I plan on having Christmas shopping done. I add money to that transaction throughout the year so when I’m ready to go shopping I know how much I have to spend and it’s already in the bank and accounted for. I do this with school books (I homeschool), vacation, home improvements, and big ticket items such as a new TV or big appliance. Yeah, I could stick that wad of cash somewhere and make some interest off it, but I’m never going to be rich, don’t want to be, and I’ll never be a rocket-scientist either!
This is just what works for me.
Now, if we could address the whole having to have everything in alphabetical order in the pantry thing, I’ll be good!!! lol
T.
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jolyn Reply:
July 22nd, 2010 at 11:44 pm
That totally works! … I think?
Not only do your “buffers” cover any possible human error on your part; they also insure against a mess in the event of a bank error or fraudulent activity that you don’t catch right away. Perfect use for the “extra” money, IMO! Now go mix up those cans. You can do it. 
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The “normal” bank overdraft protection (ready reserve) costs a bundle in interest if there’s a balance – usually around 18%. I’ve found the best way is to have your checking connected to a savings account so the bank can automatically move some over if you overdraw. There is a fee for them doing this (ours is $2.00), but it’s smaller than an overdraft fee or the interest on ready reserve. Of course the perfect way would be to check your balance daily and move the money yourself if you’re going to need it in checking. But who’s perfect?
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jolyn Reply:
July 22nd, 2010 at 11:39 pm
Yea, moving money around is the obvious solution. Short of “spending more than you earn” I think of ODP as a protection against human error and fraudulent activity. I’m glad my bank doesn’t charge for the transfer. (It’s just up to me to keep money in the ODP [savings] account!)
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We are not doing well this summer with tracking our bank accounts. I’m rather ashamed to admit to having paid overdraft many times. It’s gonna be all cash next month!
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jolyn Reply:
July 22nd, 2010 at 11:35 pm
Hey, whatever it takes — you can do it!
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You named my two “tricks”. I have $500 in my account that is not reflected in our balance and I check my online balance several times a week to make sure I’m up to date. (And if you want to know the *REAL* way I avoid it… I took away my dh’s debit card and gave him a credit card. That way I’m in control of the account without any surprises. And I pay his balance each month in one fell swoop rather than little bits and pieces that he neglects to tell me about. lol)
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jolyn Reply:
July 22nd, 2010 at 11:35 pm
Ooh, so clever!
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I have overdraft protection for $150 and heartily try to avoid using it. I got the protection when a few years ago it took the school picture check several weeks to clear, and of course, I forgot about it, costing me an additional $35. Since then, no fees. Also, no overdrafts…. Hmmmm.
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Cathie Reply:
July 22nd, 2010 at 9:13 am
It took our Cub Scout registration check 6 months to clear last year. Which coincidentally fell right at Christmas time. What a surprise!!
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jolyn Reply:
July 22nd, 2010 at 11:37 pm
That’s exactly the kind of “whoops” I’m talking about! Checks always catch me off guard anymore, I write so few of them. If I don’t write them down right away I’m doomed to forget them altogether. Apparently the people we write them to sometimes forget about them, too.
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Thirteen?!?! I need a moment to pick my jaw up off the floor.
Wow!
Of course, I wonder if that’s two mistakes a year and the fines just pile up once that first one bounces?
We link another account to our checking account. If we run short, the bank can transfer over enough to cover it. Well worth the time it took to set up!
Stacy
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jolyn Reply:
July 22nd, 2010 at 11:34 pm
I’m sure that is often exactly what happens: one overdraft fee usually starts a domino effect. I saw that so many times with my job at a bank.
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