Bank overdraft - Overcharges

Have you been unlucky (or careless) enough to go south of the border with your checking account, perhaps because you neglected to enter a check in your checkbook or used your debit card and didn't enter the transaction or thought you had made a deposit, but had not?

Banks are counting on you, folks. They are counting on you to cross the border, when they will sock it to you.

Last night a friend emailed me to complain about hundreds of dollars in bank fees that were assessed to her checking account. Seems her son had given her a bad check for about $845 and she wrote checks against it before confirming whether the deposit had cleared. That was her first mistake.

Only after the fact did she learn of her bank's procedure for clearing checks.

Now, your bank respects you and treats you as a valued customer. Right? Wrong! They treat you like a valuable customer that you are - one from whose account they can rip money and then hide behind the fine print. After all, you do read all the fine print in those little Account Information notices they send you, don't you?

How does this work? Let's say you have $400 in your checking account (including that $200 from your son that you just deposited a couple of days ago), and then five checks or debit-card transactions hit your account on the same day. The checks are for $10, $25, $50, $100 and $190.

Your kid just called and 'fessed up that his check is going to bounce. You're good with math, and you can quickly see that the first four checks ought to go through ($185) and you'll get zinged for only one overdraft fee.

But wait! Your bank has other plans for you. It will prioritize the handling of your checks from the largest to the smallest. This means that the $190 check will clear, and the other four will not - resulting in four overdraft fees, not one.

But that's not all, because your bank will probably put them through at least one more time, meaning four more overdraft fees!

Ask your bank how it processes checks, and make a decision whether it's time to shop for a new bank. Unfortunately, you may be hard-pressed to find a bank that doesn't process the largest check first and leave you hanging out there on the rest.

What can you do? Keep money in a savings account with automatic transfers set up. Set up overdraft protection on your checking account. Don't overspend your balance by using your debit card. Keep your checkbook balanced.