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April 12, 2006 3:16 PM   Subscribe

What are your strategies for avoiding overdraft fees?

Another month, another $75 in over draft fees. Here's my situation:
I earn enough money to pay all my bills and eat out a bit--it's the most comfortable I've been (financially) in four years. I do not earn enough to have any buffer between paychecks, however. I try to avoid cash and pay for as much as I can with a debit card, via the web if at all possible. Every month it seems that I have miscalculated yet again and the overdraft pile-on ensues. At my previous bank, I was able to get a credit card, and they were nice enough to apply excess charges to that instead, but this bank (actually a credit union) has nothing like that.

Two months ago I began taking meticulous notes in my pocketpc, detailing every transaction. The problem is that
a) many transactions (such as personal checks) don't show up in my bank account for weeks and
b) a few transactions (my automatic payment for my gas bill) only show up on the bank statement and, thus, don't get entered into my personal accounting.
This makes it really difficult to balance my books on a daily (nay, hourly) basis, which is what I would really like to do.

My partner had the same problem, and just switched to an entirely cash-based lifestyle. I really like paying for things online, however.

Someone else suggested telling the bank to start refusing excess charges, but that seems a little foolhardy.

Quick note: I know that there are plenty of ways that I could save money (stop eating out, for one) but that's not really my question. I'm just looking for useful systems that you have all set up so that you know _accurately_ how much cash you have at any given point.
posted by Squid Voltaire to Work & Money (33 answers total)
 
Banks explicitly set things up so that they can charge you the maximum in overdraft fees.

What you need to do is bite the bullet and save several hundred dollars, put it in the checking account, and then subtract that money from your checkbook... so the bank is at $200 when you're at $0.

They use algorithms to extract the most possible money from you... posting credits as late as possible, and posting charges as early as they can.
posted by Malor at 3:18 PM on April 12, 2006


Without a buffer your best best would be to put away the atm card and use cash. Then you'll know for sure how much cash you have left until payday.

$75 per month in overdraft fees is not insignificant and it seems to me that it could be the buffer you're looking for.
posted by SoftSummerBreeze at 3:20 PM on April 12, 2006


You should keep track of your spending independent of bank statements. This means that you should track whenever you write a check (put it in the register), and deduct that amount from your balance immediately. Same thing with the automatic payments... know when they happen, and track the deductions accordingly.

The alternative is to keep a cushion of a few hundred dollars in your checking account, so you (probably) won't hit bottom.
posted by knave at 3:20 PM on April 12, 2006


Ask if your bank supports overdraft accounts, small lines of credit that are automatically invoked when your checking account is exceeded. They don't cost anything except the tiny amount of interest accrued against the overdraft.
posted by ldenneau at 3:21 PM on April 12, 2006


Why not switch to a credit card and pay it off monthly?
posted by crazycanuck at 3:24 PM on April 12, 2006


I try to avoid using my check card for this very reason. I withdraw cash ($80 or so at a time) for smaller purchases and only use the card for large purchases. That way it's far easier to keep track of expenses.
posted by neckro23 at 3:25 PM on April 12, 2006


You can link a savings account to your checking account. They'll still probably charge you fees when you go over, but it should be cheaper (say, $10 instead of $25), so long as you keep enough money in the savings account to cover things.

And, yeah, the banks totally screw you over. Many times I have checked the balance online, checked the balance physically at the ATM, and carefully deposited enough money to make sure that I don't go over my limit. Then some debit charges get processed after a few days, and the bank retroactively subtracts them from the day the transaction took place and charges buttloads of fees, regardless of the fact that there is never actually any point in time where I have a negative balance on my account.

The bank will reverse the fee one or two times if you call and ask, but no more than that.
posted by designbot at 3:30 PM on April 12, 2006


I don't let anyone else take money out of my account. This means no automatic payments for gas bills etc. It puts more pressure on you to make sure you pay them on time, but if you're out of money and the bill is due, the interest the utilities charge for a week late payment is a LOT less than the overdraft fee from the bank. Just make sure you're not consistently paying them late.
posted by raedyn at 3:32 PM on April 12, 2006


I use a lot of cheques, and my best strategy is the TAKE IT OUT in your quicken account (or where you're keeping track) as soon as you hand away that cheque. The money is GONE. Not there anymore.

When you have "fluctuating" automatic payments, change them to cheque or online payments. It's just as easy - the bill gets sent to your email, you check it, and then you pay it online via your bank acct - but you will know ahead of time whether it's taking off $50 or $150 before it gets taken out. Only do pre-authorized transactions for bills that are consistent like car insurance or rent.

Here's my old article in budgeting, and there's a little excel spreadsheet I use that you might find useful. It's basically a in/out system, and with a pocketPC you can edit entries on the fly.
posted by Sallysings at 3:33 PM on April 12, 2006


Another way to handle payments which must be automatically deducted is to open a second account and transfer money into that. I used to live in a building which required you to accept automatic, monthly deduction of your rent. I opened a scecond account just to keep it separate from the daily fluctuations of my main account.

My bank let me do it for no additional charges. Yours might not.
posted by nathan_teske at 3:42 PM on April 12, 2006


Get two bank accounts. One where all your automated / posted transactions go. One you use for day-to-day spending.

But, seriously, if you're having this much trouble, you're spending too much. You need to cut back for a bit and create a cash buffer in your bank account. Even when I was a student living on $500 a month, I never let my account go below $500. I acted like $500 was $0. If you need to do so, check your online statement every night. In fact, whenever you use your debit card, you should have an idea of how much money is left in your account.

It can be hard to budget if you use a debt and have automated payments. Personally, I can keep a running total in my head and I know how much all my bill transactions are and when they come out. Not everyone has the ability to keep all that in their head. So that's why I encourage you to build up a cash buffer and then check your accounts all the time until you have the ability to keep it in your head.

What I would recommend is that you look at how much you are spending on eating out. Give yourself a break and see if you can cut back by 1/3. If you have trouble keeping your hands off it, cut that money into a separate account (like ING) and don't touch it. When it reaches $500, put it in your main account and don't ever let the balance fall below that amount. You don't have to be earning pots of money to do this. You can get there.

Once you've got that $500, save up another $500 and get a secured credit card. Then you can switch to using a credit card (and check your balance during the month, if you have trouble budgeting).

Living paycheque to paycheque is stressful and expensive.
posted by acoutu at 3:45 PM on April 12, 2006


I do exactly what acoutu does.

Yes, it's hard to save up a chunk of cash. It may take a while. It may involve sacrifices.

My original goal was to build up $1000 and not to go below that (did several times the first year after I got up to a grand). My goal then was to build it up to $2000. Once I got up to a couple of grand, I haven't dropped below it (it's been about a year now).
posted by PurplePorpoise at 3:49 PM on April 12, 2006


This makes it really difficult to balance my books...

No it doesn't. It just means you have to use a slightly different strategy. You have to subtract payments from your available balance as soon as the debt is incurred, rather than when you pay it.

Let's say you have $500 in your account. You write a check for $35 and put it in the mail. Your gas bill is usually around $90, and is typically deducted on the 13th of the month (tomorrow). You just fueled up your vehicle with $28 worth of gas.

You bank will tell you, if you check your balance that evening, that you have $500 available. What you need to do is subtract all those payments you made today, and realize that even though you have $500 in the bank, your available balance is only $347.

Never go by the balance that your bank or the ATM gives you. Only go by the balance you have written down. That way, if you send out a check that isn't cashed for three weeks, it doesn't matter -- you've already counted those funds as spent.

Now, every time you get a statement, you'll need to reconcile your ledger against that statement, to be sure you didn't miss any transactions, and that you got all of the amounts right. It's not difficult, but it does take a little time, especially if you use your debit card a lot.

Software (like Quicken) makes this easier, of course, but it's not a necessity. People did this on paper for thousands of years, after all. If you want some help or advice on setting this up, I'll be watching this thread, or you can email me.
posted by CrayDrygu at 3:52 PM on April 12, 2006


Oh, and the above two are right about setting up a buffer. Easy way to do it? Take 10% of every paycheck and immediately shuffle it off into a savings account.

I know you're living paycheck to paycheck. You won't notice the 10% is missing, trust me. You will invisibly adjust your spending in other areas to compensate.
posted by CrayDrygu at 3:54 PM on April 12, 2006


I should add - I don't let anyone else take money out of my account, but I pay all my bills online. I have a folder at my PC that I stack bills in as they come in, and once a week or so, I sit down at the computer and pay whatever bills are there via online banking. I like that there's no waiting for the cheque to clear.

Look at when all your bills are due. Are they all at the same time, like the start of the month? Could you negotiate with any of them to have them due at a different time of month so you're always paying a bit of something, but not so much at once?
posted by raedyn at 3:55 PM on April 12, 2006


I had a similar problem; the only way to find out how much money I actually had was to call up the bank with a list of all the checks I'd written in the last couple of months and see which ones still hadn't cleared yet. Too much work and too prone to error; the popular advice, "keep a ledger tracking all your expenses", sounded like even more work and even more opportunity for error.

My solution was to open a second account, exclusively for checks, and to use my primary account exclusively for debit. I pay all my bills with checks drawn on the second account. Every time I write up a batch of checks, I call the bank and transfer an appropriate sum into the secondary account from the primary. Since both accounts are from the same bank, the transfer happens instantly.

I never use the secondary account for anything but checks. Money goes in when I transfer it in, and goes out when someone cashes a check. Thus checks never bounce. Furthermore, I never allow automatic withdrawal, so the only way money leaves my primary account is if I transfer it out or use my debit card. Thus, the balance on my primary account always represents the actual amount of money currently available.
posted by Mars Saxman at 3:57 PM on April 12, 2006


1. Total up your regular monthly items (simple spreadsheet)
2. Calculate the amount left per month after the above from your net pay
3. Divide it by 4
4. Draw this amount out of the bank each week and live on this no matter what. (after all it is all there is)
5. Relax and enjoy life - You are now living in the true reality and you can enjoy it. Everything before was just a false sense of falsity.
PS. The above may sound glib but it is based on 2-5 years of working things through.

Hope this helps. It certainly works for me.
posted by pettins at 4:00 PM on April 12, 2006


I meticulously use Quicken for all of my checking account transactions, automatic or otherwise. Beyond that, I have about a month's worth of float sitting in checking at all times.

Also, I put my smaller transactions onto a credit card, and just pay that off monthly out of the bank. Fewer things to track that way.
posted by I Love Tacos at 4:01 PM on April 12, 2006


I manually use a savings account for this. I transfer cash into checking if I notice that it's a little low in the leadup to payday.
posted by Megafly at 4:05 PM on April 12, 2006


Isn't this the exact purpose of a register in a checkbook?

My mother, for one, carries her register with her everywhere, and even though she rarely writes checks anymore, she still writes down any time her debit card is used, or she makes any purchase drawing from the account.

You can easily factor in your automatic payments since their amounts are accessible online, and write them down as such. This way, it doesn't matter when the checks hit or anything like that, and you have an exact running count of what's available.

Make it even easier on yourself and assign a $100 charge to yourself at the beginning of the month so you have some breathing room. Refund it at the end of the month as necessary.
posted by disillusioned at 4:33 PM on April 12, 2006


Banks explicitly set things up so that they can charge you the maximum in overdraft fees.

Exactly. I was in your position and they'd totally fuck you over. I have overdraft protection on my bank account, but since my credit card was at the limit, that didn't do any good. If you go in and complain they might wave the fees, but that will only happen once.

If you're really screwed, you might want to look into getting a payday loan. Yeah, they suck, but they definitely suck less then overdraft fees.

The worst possible solution: Just overdraw by $100 or so from an ATM, rather then using your debit card to pay for everything for the rest of the month if you're really in an emergency and need money. You'll only get one overdraft fee rather then several.
posted by delmoi at 5:03 PM on April 12, 2006


Isn't this the exact purpose of a register in a checkbook?

That's how I feel. I keep my checkbook balanced at all times. I always know how much money I have available to spend. I cut it close, but I never overdraft.
posted by ThePinkSuperhero at 5:06 PM on April 12, 2006 [1 favorite]


Some keys for me (many already mentioned):

1. Two-account system (one for spending money, one for bills). Pay all bills through online banking, if possible. Avoid writing a personal check at all costs - get a money order if neccessary.

2. Daily attention paid to account activity online.

3. Never allow someone to automatically debit account -- ever try getting some places to stop? Planet Fitness, I'm looking in your direction...

4. Overdraft protection thru savings/credit card for emergencies.

If your bank doesn't offer these things... find a new bank!
posted by Rock Steady at 6:21 PM on April 12, 2006


I earn enough money to pay all my bills and eat out a bit.

If you're spending all the money you make every two weeks then this is simply not true. Stop eating out so much until you have a savings buffer.
posted by croutonsupafreak at 6:46 PM on April 12, 2006


I have to agree with those who have suggested that you stop writing checks (and that you stop eating out so much). With the exception of rent (which I'm planning on switching over to an online bill pay service), I stopped writing checks about three years ago and haven't been overdrawn since.

I'm also meticulous about making sure that I check my balance online on a daily basis, paying any bills that are due before I spend any money on absolutely anything else (so that the money is no longer there), and keeping tabs on everything that will be automatically withdrawn later in the week/time before my next payday.

You just have to be vigilant. The "buffer" is a good idea, too, but don't use it as an "overdraft account"; banks and credit unions can close your account if you bounce too many checks.

Good luck!
posted by mewithoutyou at 7:11 PM on April 12, 2006


There really is no effective alternative to keeping an accurate register or ledger. Make a note of every cheque - the moment it's written that money is gone. Any direct debits get removed from the current balance on the same date each month and that money is gone. Keep every receipt where you use a debit/credit card. Every couple of days, and especially before any large purchase, empty them out of your wallet and enter them into your recording system of choice.

One trick I use is to work in whole dollar amounts only. Money going out gets rounded up, money coming in gets rounded down. You'll be amazed how fast the spare change adds up to a couple of hundred dollars cushion in the account.

Once you get in these habits its second nature and takes only a couple of minutes at a time. No fancy software required. I've been using a simple spreadsheet for years and it works fine. Follow these simple rules and you always think you have less money than the bank thinks you have, which is far preferable to the converse.
posted by normy at 7:13 PM on April 12, 2006


I have a line of credit with my bank, so whenever my checking account is overextended, they just pull it from there instead of bouncing anything.

Has saved my ass on many o' occasion.
posted by o2b at 8:35 PM on April 12, 2006


I dropped 5/3 bank for this reason (I had signed up back when it was Indiana Federal, then bought out several times - Pinnacle, etc - up to 5/3) and went to a more local bank. Deposits and withdrawals (checks, whatever) that come through on the same day - deposits are figured first, so I have not had one overdraft since I started using them.

The main drawback is that it's a teensy bit harder to find an ATM for my bank, but since I hardly ever use the ATM now, it doesn't matter to me.
posted by IndigoRain at 9:17 PM on April 12, 2006


A third vote for acoutu's method, which is what I do: just keep a buffer. I used to beat myself up about being irresponsible because I wouldn't consistently keep track of every expense.

Now, when I want to buy something, I say to myself: "Let's see, I've got about $500 in the bank. My next check comes in six days. Do I think that there is even a remote possiblity that this purchase plus any pending debits or checks will overdraw the account within the next six days?"

And if the answer is yes, then I just wait until after my next check to make the purchase.

It's an imperfect system, but it's realistic, for me.
posted by bingo at 9:57 PM on April 12, 2006


Buffer.

Also keep in mind that many banks pay larger items first (like say, your RENT and your CAR PAYMENT) so that yes, in fact, if you have a check for $750.00, one for $50.00, one for $15.00 and an automatic debit for $25.00, they will be paid from greatest to least. You may think that they do this to screw you over, but in reality, paying your rent first and potentially keeping you from being evicted is doing you a favor. So.

Keep a buffer in your checking account. Check your online banking every day. If your bank's online services suck, FIND A BANK THAT HAS EXCELLENT ONLINE BANKING. There is no substitute for checking your account at least once a day, every day. If your check card transactions are taking three or five days to show up online, get a new bank.

Know what it coming and going. Some people, like myself and some others here, can just remember that stuff. You may have to write it down. Whatever -- just don't "forget" transactions you've got pending.
posted by Medieval Maven at 5:14 AM on April 13, 2006


The advice in this thread has been great so far, especially the advice about writing down your transactions in a register or software program.

Speaking as one who has been there, overdraft fees are a clear indication that you're not tracking your finances as closely as you think you are. Tracking finances only through receipts, or only through your bank's web site is inadequate. You need to keep a separate ledger (perhaps a checkbook ledger) or use a piece of software (such as Quicken) in order to track every expense. If you live paycheck-to-paycheck, and fail to track every expense, you will experience overdraft fees from time-to-time. It may be more convenient to only track your expenses via your bank's web site, but if you do that, you need to realize there are always going to be checks and other transactions "in process" that don't show on the web site, and consider overdraft fees the price you pay for adhering to such a system.

There are other ways to compensate for chronic overdrafts, of course. Banks offer overdraft protection, which is usually linked to a secondary account (such as a savings account). This is an excellent option for those who repeatedly suffer overdraft fees but are unwilling to record every transaction as it happens. Many people create an artificial buffer in their account. At one time, I had a $100 in my checking account that I would not allow myself to touch. If my balance fell below $100, I just stopped spending. I wasn't overdrawn in the bank's eyes (and thus did not receive a fine), but I was overdrawn in my eyes. This worked until I spent that $100.

(Brief self-link: my Get Rich Slowly site is nearly ready to launch, and, among other things, will feature tips on how to deal with financial situations such as this.)

Good luck!
posted by jdroth at 10:49 AM on April 13, 2006


I second crazycanuck's suggestion.

I suddenly had this same problem when I got married and started sharing a checking account. I think I'm very scrupulous about recording every transaction but I'd still end up in overdraft. Finally, we just switched entirely to credit cards for all daily transactions (plus gas, electric, phone, internet, etc.) and now I only pay the entire credit card bill and the rent/mortgage out of my checking, but nothing else so I can easily keep track of everything.

These other suggestions are great, but nothing else worked for me.
posted by DrJJ at 6:46 PM on April 13, 2006


Great advice, thank you all. I really thought I'd cracked it when I started the ledger--buying a bagel, and then scribbling it down in my phone... (I'll try that excel sheet, thanks Sallysings)

Sadly, if seems that I will have to bite the unfortunate bullet of establishing a buffer. I've recently started keeping an extra $5 bill in my pocket for emergency use only, and I thought that was pretty impressive, so two hundred bucks seems daunting. Fortunately, my partner and I are great (if lazy) cooks.

If nothing else, it's nice to see so many responses--clearly I'm not the only one who's been handing out free cash to his financial institution.
posted by Squid Voltaire at 9:36 AM on April 14, 2006


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