Opting Out of Overdraft

Overdrafts can be a very costly way to transact business.  Of course most of us never really intend to overdraft our checking accounts, it usually happens unexpectedly just before a payday or as a result of an unexpected expense.  Financial Institutions treat overdrafts as a very short term loan and assign a fee for the transaction.  Many fees range between $30- 35 for each overdraft.  Once one transaction creates an overdraft, each subsequent transaction creates another and another until the balance in your checking account is restored.  It is not uncommon to see overdrafts come in multiples.

In an effort to help families overcome the overdraft fee monster, Federal legislation enacted in 2011 allows people to "Opt Out" of overdrafts.  This can help to stop the avalanche before it starts.  When you opt out of overdrafts, your debit card will be declined if it creates an overdraft for you.  If you are at your local grocery purchasing your needed items, at the checkout you will find that your transaction will not be processed.  At that point, you can put some items back and pay using your available funds. It stops the snowball of overdraft fees and keeps you in the black!

One thing to consider is that your transaction may be declined even if you have the funds in your checking account if there are holds placed on your account by virtue of a gas, hotel, restaurant or some other purchase that holds an amount to cover your transaction. 

Where opting out doesn't prevent a fee is when you have electronic bill payments or checks being submitted for payment.  The financial institutions may charge you a fee even if you chose to opt out.  In 2011, financial institutions earned an estimated $38.5 billion in fees associated with overdraft fees according to a Pew Study "Hidden Risks: the Case for Safe and Transparent Checking Accounts". 

Overdrafts can be the reason that people leave a financial institution and are prevented from opening new accounts because of a history of negative balances left at a former financial institution.  Fortunately, you can take action to protect yourself and keep your good name intact:

1. Know your balance: keep good records of transactions and verify that transactions are correct and unduplicated by reviewing transactions through online banking or reviewing your monthly statement. See details in your "Bank On It" lesson.

2. Know what Checksystems reports on you: get your free annual Checksystems report by requesting it at www.consumerdebit.com.

3.  Linking your savings with your checking may prevent unnecessary fees, but be sure to repay your savings as soon as possible to keep your emergency protections in place.

4.  Know your financial institution's fee schedule so that you can know how to avoid unnecessary penalty fees.

To learn more about the Opt Out Rule check out this article:
Opt Out Rule - Federal Reserve Board

Vacation Savings Toolkit

From Virginia Saves:

Find great ways to enjoy a getaway without busting your budget with Virginia Saves Vacation Planning Toolkit. 

With a little prior planning you can have the most memorable summer fun and create lasting memories for you and your family.

Value of Reduced Expenses

From Smart About Money


Mid Year Savings Review

Supplement Your Savings from Smart About Money:

Now is a great time for a mid-year savings review. Wish you had a little more stashed away for summer fun? Make some extra dollars by putting what you already have to good use.

Use your skills and expertise to offer tutoring or teach classes over the summer. Do you craft or create in your spare time? Sell your wares. Finally, have a yard sale to make some extra cash. List more expensive or leftover items on online auction sites or web bulletin boards. 

By purging what you no longer want or need, you can create more space in your home and in your budget.

5 Ways Thieves Steal Credit Card Data

From Bankrate.com

The number of compromised records has been on the decline the last two years, according to the Secret Service, after reaching a record high of 361 million records in 2008. The trend might reverse this year, however, after a recent string of mishaps.


Dangers of Prepaid Debit Cards

From Bankrate.com

Some consumers are considering dumping their bank and instead using prepaid debit cards as an alternative to a traditional checking account. The reasons for doing so vary, but convenience and a desire to control spending are among the top motivators.

However, the decision to embrace prepaid debit cards can be fraught with danger, according to Nikiforos T. Laopodis, associate professor of finance at Fairfield University's Dolan School of Business in Connecticut.

Laopodis says high fees and lack of government regulation are among the factors that make prepaid debit cards riskier than some people might think. He outlines his thoughts in the following interview.


CFPB Confirms Debt Trap

From Center for Responsible Lending
Payday loans lead many borrowers into cycles of debt, according to a new white paper by the Consumer Financial Protection Bureau. Among the study's findings: most payday loan borrowers make less than $30,000 annually, and the average borrower is in debt for nearly 200 days a year.

Did you know?

  • More than 1/2 of payday loan customers remain in debt for 199 day out of the year (more than six months) while the average repayment period for a payday loan is approximately 2 weeks.
  • The average amount borrowed on a payday loan is $350 but the total fees paid over a 12 month period for payday loans is $458.
  • 1/2 of all payday loan customers earn $22,476 or less.
  • 25% of all payday loan customers report some form of public assistance or other benefits.
  • Virginia offers a minimum of two payday cycles for loan repayment and a madated cooling-off period after loan repayment. 

What affects your credit score?

From the Center for Responsible Lending
Knowing your credit score is a good thing. But understanding what affects it is even better. This video outlines five important factors contributing to your credit score.

Free Resource for Will Creation

One of the actions people in the Mayor’s Action Challenge need to complete as part of demonstrating financial fitness is to create a valid will.    http://www.doyourownwill.com/  has a simple will that is fairly easily without requiring a login etc.  Recognize that it may not adequately address complex situations, for those you should see a lawyer. 

Remember, have your will notarized and signed in front of two witnesses.  Your bank often can provide that service.

Career Coaching at your Library

Meyera E. Oberndorf Central Library is host to FREE CAREER COACHING.  Mondays by appointment.  If you want to accelerate your income potential or land your dream job!

The Career Coach on Mondays is available to the public. Appointments are taken two weeks ahead, and it typically fill up pretty quickly. Customers can register via phone at 385-0150 or in person at Central Library.

Avoiding Bank Fees

From Federal Reserve

What do you need to know about courtesy overdraft-protection, or bounce coverage, plans?

itemAvoid using these plans as short-term loans--they are costly forms of credit.

itemIf you overdraw your account, get money back into your account as soon as possible. Remember that you need to put enough money back into your account to cover both the amount of your overdraft and any bank fees.

itemEven if you have one of these plans, there is no guarantee that your bank will cover your checks, ATM withdrawals, and debit card and other electronic transactions that overdraw your account.

itemGood account management is the lowest-cost way to protect your hard-earned money. If you need overdraft protection every now and then, ask your bank about the choices and services that are right for you.

What are some other ways to cover overdrafts?

Banks, savings and loans, and credit unions may provide other ways of covering overdrafts that may be less expensive. Ask your bank about these options before making your choice. You may be able to:

itemLink your checking account to a savings account you have with the bank. If you overdraw your checking account, the bank can transfer funds from your savings account to your checking account. Ask your bank about transfer fees.

itemSet up an overdraft line of credit with the bank. You need to apply for a "line of credit" just as you would apply for a regular loan. If you overdraw your account, the bank will lend you the funds by using your line of credit to cover the overdraft. You will pay interest on this loan, and there may be an annual fee. But the overall costs may be less than the costs for courtesy overdraft-protection plans.

itemLink your account to a credit card you have with the bank. If you link your account to a credit card, any overdraft amount becomes a cash advance on your credit card. You will probably be charged a cash-advance fee, and interest charges on the advance will start immediately. The cost of this option depends on the interest rate on your credit card and how long you take to pay back the advance.
The choice is yours. Consider these ways to cover your overdrafts:
Ways to cover your overdraftsExample of possible cost for each overdraft*
Good account management$0
Link to savings account$5 transfer fee
Overdraft line of credit$15 annual fee + 12% APR
Link to cash advance on credit card$3 cash-advance fee + 18% APR
Courtesy overdraft-protection plan $20 to $30
Bounced check $40 to $60 ($20 to $30 bank fee +
$20 to $30 merchant fee)
* These costs are only examples. Ask your bank, savings and loan, or credit union about its fees.