Have you ever received a hefty charge for accidentally withdrawing more money than is in your checking account? These fees can be quite high, so the New Jersey Society of Certified Public Accountants (NJSCPA) advises that you understand how they work and how to avoid them:
The Nuts and Bolts
When you try to withdraw more money than you have in your account, the bank can refuse that withdrawal, which they do when they return a bounced check for insufficient funds and charge you a bounced check fee. They may also allow the transaction and charge you an overdraft fee. This can happen if you write a check for more money than is in your account or if you make a withdrawal using an ATM machine or debit card for an amount exceeding your checking balance. You might also be charged a fee if an automatic or electronic payment puts your account into overdraft status. When you open your account, find out your bank’s policy so that you are not taken by surprise later.
Why is it important to be informed? A large overdraft fee can turn any purchase into an extremely expensive proposition. Say you use your debit card to buy a sandwich for $5. Unfortunately, your funds are very low, and there’s not enough in the account to cover the purchase. If your bank charges a $20 overdraft fee, then your sandwich ultimately costs $25.
Keep Your Records Current
That’s why it’s so important to understand your bank’s policy and avoid these fees. Begin by recording all of your checks, debit card purchases and ATM withdrawals accurately and quickly so you always have a clear idea of how much money is in your account. If you get information from the bank about your current balance, remember that some checks or automatic payments may not have cleared yet. If you withdraw most of your current balance now, you may be hit with an overdraft fee when outstanding checks or payments are cleared. Of course, you’ll also want to check your account statement when you receive it from the bank each month to see how you stand and to ensure no errors have been made.
Look for Links
Find out if you have less expensive options for protecting yourself against overdraft charges. For example, the bank may allow you to link your checking account with your savings account or a credit card. If you withdraw more than you have, the bank takes the money from savings or charges it to your credit card instead of slapping you with a large overdraft fee. Some banks also offer a line of credit that covers overdrafts. The bank many charge you a transfer or other fee for these transactions, but it is usually much lower than overdraft or bounced check charges.
Avoid the Bounce
It’s important to consider, too, that even if you have overdraft protection, your bank may not always honor a check or transaction for an amount that is higher than your current balance, depending on the size or circumstances of the withdrawal. If it does refuse a check or transaction for insufficient funds, not only will your bank hit you with a high charge, but you might have to pay a bounced check fee to the intended check recipient.
Consult Your CPA
Unexpected fees and hidden charges can make it difficult to manage your money. When you have questions about handling your finances, remember that your CPA can help. Turn to him or her with all your family’s financial questions. If you don’t have a CPA, you can easily locate one online using the NJSCPA’s free, online Find-A-CPA service. Just go to www.findacpa.org, and in a few clicks you can locate a highly qualified professional who can assist you.
For more information on various personal financial matters, visit the NJSCPA’s public service website at www.MoneyMattersNJ.com. While visiting, you can subscribe to Your Money Matters, the NJSCPA’s free, monthly email
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