Last night there was a story on NBC news about a young soldier, Private Cid, who was having problems with his bank debit card. Since a couple of my family members recently had similar problems, I felt like it was time to speak out. I did some research and found some potential answers, political and practical. This may be long, but I encourage you to read on.
It seems young Private Cid uses his debit card daily for a lot of small transactions. In fact, the video story can be found at this site (I just rewatched it) and it says the average debit card transaction is under $20. In one day Private Cid had five such transactions, for pizza, sandwiches and such totaling $33.41. Trouble was, he didn't have the money in the bank and encountered $175 in overdraft charges. In a single five month period, he had total overdraft charges of $1785. For a young army private, that's more than a month's salary.
Now the individual in this story is an army soldier which brings a special feeling of patriotism (no mention was made of where he's serving). But this could easily apply to my son or my daughter. And since I know a few people who recently faced similar situations, I paid special attention. Overdraft fees are a "cash cow" for the banks and they will make over $27BILLION with these fees. I can be somewhat cold sometimes (my kids think all the time) and I think the bank deserves to make a profit, but they don't have to make it all on me (or my family).
There are some proposals that may change the way these overdraft fees work. I tend to favor less legislation, but in this case, the banks have not been playing nice (even if they've been playing by the rules) and it's probably time to change the rules. However, changing the rules won't be 100% in favor of the consumer and the consumer is bound to lose some in the deal. For example, banks claim they pay these over-charges as a courtesy to consumers and that "6 percent of consumers were glad their charges were paid, despite the overdraft fee." Overdraft fees only affects about 18% of Americans (details on the legislation and the source for this is here -- do I get bonus points from liberals by quoting a newspaper with "democrat" in the name?).
But if you're counting on the government to bail you out of overdraft prison, you might be stuck for a while. So I have a simple solution and some alternatives to help you in the mean time. They do require a little discipline and I know that's hard to come by these days. One simple solution is to keep track of how much money is in your account and never go below $0. Only the government can keep spending when the balance reaches $0 and if you're not printing money in your spare room, you can't get away with it.
Another solution is to "hide" some money in your account. The amount depends on the most you charge in a given day. Say you regularly charge about $33.41 in a day like Private Cid. You put an extra $35 in your account and mentally subtract that from the balance each time you check it. For easier math, just make it $100. Then when your balance goes below $100, you think "Oh No, I've overdrawn" and you put it back. This requires some extra discipline because you have to make it a practice NOT to spend that $100.
Traditional banks sometimes offer "sweep" accounts, where you can have money in savings and have it "sweep" to checking when you overdraft. This, or a line of credit, will effectively do the same as "hidden" money. But these aren't always available to everyone.
Finally, I'll mention a new, high-tech way to help. This is especially relevant to the two people I know who recently had over $100 in overdraft fees, but also relevant to everyone. My bank of choice is BB&T. They offer "Alerts" on their website. In fact, I just signed up for alerts myself. You go to the website and specify that you want to be notified when your balance drops below a certain level (I chose $100). You can have it alert you when a deposit is made, or when a check clears. You can have it alert you when you get an NSF charge (that way you can STOP SPENDING). You can even have it send you your balance each day so you know how much you have to spend.
BB&T alerts are free and can be sent to your email or even your cellphone (normal text rates apply). You can specify what time of day the alerts are sent so you don't get woken up at 8am every day. While I don't intend this as a commercial for BB&T, I strongly encourage everyone (especially overdraft prone people) to find out what their bank offers.
* Update - my editor in chief (wife) pointed out that this doesn't always take in to account pending transactions. Also, I noticed that some alerts don't come out on weekends and holidays. You still have to have some personal responsibility. But this can help you manage your account.