Overdrafts and NSFs

An overdraft occurs when the balance in a checking account is negative, resulting from writing a check or making a withdrawal for an amount totaling more than the amount of available funds in an account. When this happens, the check will be returned to the originating account marked non-sufficient funds or insufficient funds. Overdrafts do happen, more frequently than many consumers would like to believe. You don’t have to be a deadbeat to write a check or buy something with a debit card only to find that you’re using the wrong account, your deposit hasn’t gone through yet, or you simply misjudged the amount of money you have in your checking account. Legally, knowingly writing bad checks is against the law.

In many cases, when you bounce a check, it gets returned unpaid to the company or person who deposited it. In addition to the fee usually assessed by the recipient of the check, who will most likely want to be reimbursed for that charge, your bank will most likely assess a service charge to you for having written a bad check. Banks are allowed to charge fees for returned checks and overdrawn balances on both the receiver and recipient. The assessment of your account fees is governed by the terms of your deposit account agreement, which you should have received when you opened the account.

If the overdrawn amount is insignificant and you have a long standing account with a bank, the bank may pay your check, but still assess a fee for payment. If you’re in the habit of bouncing checks, these fees can be as high as $30.00 even if you only overdraw your account by a dollar.

Many people assume that when they make a deposit, the money they are depositing will be available immediately at their bank. Based on Federal funds availability rules, often this assumption of immediate availability is wrong. It’s common for out-of-state or out-of-country checks to take seven days or more to clear. In addition, when you write several checks that clear the bank quickly, banks may clear those checks in an order that causes more checks to be returned and charged an overdraft fee. You may write your checks in numerical order, but that doesn’t mean the bank will post them that way. The same is true with point-of-sale or other electronic transactions: They don’t necessarily post in the order in which you made the purchases.

When several items come to the bank for clearing, it can choose to debit them from your account in several ways. Many national banks are opting to post the largest dollar items first instead of posting the checks in numerical order. Often the largest check represents payment for rent, mortgage, car payments, or insurance premiums.

The best way to avoid overdraft fees is to avoid overdrawing your account. These days, electronic banking has made overdraft avoidance easier than ever, you can get email or phone alerts whenever you cross a low balance threshold, you can transfer funds before a pending transaction puts you below the $0 mark, and even the trusty old check register is still around as a means of keeping tabs on your spending.

This entry was posted on Sunday, October 12th, 2008 at 11:40 am and is filed under Banking and CD Guide. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.