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Cruel Overdraft Traps

I’ve always figured banks actually want you to overdraw your checking account so they can score a fee, but I had no idea banks manipulate transactions to cause overdrafts, as SmartMoney.com reports. Here are the two most shocking tricks banks use, and how you can fight back.

Debit transactions

You might think that when you use your debit card, if there is not enough money in your checking account, the charge will be declined. Not necessarily. Banks will discreetly set a cushion on your debit card so that charges overdrawing your account by up to a certain amount will go through.

Fight back by asking your back to set the debit overdraw amount to zero. Next time you’ll just suffer an embarrassing decline rather than a fee of up to $39.

Reordered debits

This is some slimy stuff. Let’s say you use your debit card for a few small purchases on one day:

  • A $5 breakfast
  • A $10 lunch
  • A $25 trip to the drugstore

Then, your landlord cashes your $700 rent check later that day. Unfortunately, you only have $701 in your account. It seems that you should be responsible for one overdraft, right? You spent your account down to $661, and when the rent check cleared, your account gets overdrawn by $39.

Your bank, however, may actually rearrange the posting order of your transactions, however, so that the rent check clears first, and then your other transactions. That means that your account would get overdrawn by the rent check to ($39) and be assessed a fee (let’s say $25).

Your account is now at ($64). Next comes the $25 debit, triggering another fee, putting your account at ($114). At the end of the day, the bank will charge you $100 in fees and your account will be at ($179).

Fighting back is hard, but the best way to dodge this unscrupulous practice is to avoid an overdraft in the first place by tracking your spending and keeping a cushion of funds in your checking account at all times. If it does happen to you, however, call your bank immediately to protest. Threaten taking your account elsewhere if they don’t knock off all but one of the fees.

Published or updated on August 19, 2008

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


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  1. Amy says:

    On Reordered debits, I have run into this with a previous bank account at AM South. They would save up transactions for the whole weekend and then post them on Monday, posting the largest first and then going from there to rack up as many NSF fees as possible. I was so upset that I went in to complain to the bank manager. I was told that I could not speak to the bank manager and that the assistant manager would be the only one to hear my case. After much arguing and several weeks one of the NSF fees was reversed. Shortly thereafter I canceled my account. I still tell people to stay far away from this bank if they’re looking.

  2. If only it worked the other way as well. My bank removed $8,000 out of my savings account and I found the error a week later. I emailed and called the branch and they said it was an error and someone keyed in the wrong account number. Did I get to collect a $40 penalty from them? Nope.

    I do understand mistakes happen for banks as well, but when the consumer make an error, they pay for it. It then can become a cycle and is very unfortunate for many people.

  3. Walt says:

    If you set your “debit overdraw amount” to zero, you’re still likely to be hit with fees if you try to spend more than you have in your account, but the transaction will be declined. You’re actually better off overdrafting, since at least the transaction will be paid.

    As for the reordered debits, note that banks also reorder credits. Credits get posted BEFORE debits, which works out to your advantage. If you have $700 in your account, spend $5, $10, $25 and then a $700 check is cashed, and THEN you go to the bank to deposit at least $40 in the same business day, you won’t have any overdraft fees even though you spent more than you had in the account.

    When it comes to calling your bank to protest fees, the policies of waiving fees as a courtesy are rapidly going away. With this current market environment we’re in, banks are doing everything they can to keep those fees.

    I don’t have a lot of sympathy for people who get hit with overdraft fees. It’s a completely avoidable fee…just keep track of what you have and what you’re spending, and you’ll be fine. For added overdraft protection, set up a small savings account or get a bank credit card.

    • Lurch says:

      The order of transactions processed depends entirely on the institution you are working with. The bank we currently use – Centier Bank, in NW Indiana – processes debits and checks before credits (deposits), and debits are processed in reverse order of their monetary amount. You know the motive there – more $$$ in fees. Some competitors that I’ve contacted, however, do the opposite – deposits before withdrawals, debits (no specified order, and checks in sequential order. Any institution that uses a strategy that drives the little guy deeper into the hole doesn’t deserve the business – commercial or personal.

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