September Financial Fitness Challenge—Overdrafts Are Telling You Something/ September 8th, 2009
Many years ago I was reconciling my checkbook and realized with dread that I'd forgotten to deduct a mortgage payment. That meant I had a lot less money in my account than I thought—and I had more bills coming in before my next payday. I went to my credit union and 'fessed up, and got a short term loan to cover my shortfall. I was mortified. And I sure stepped up attention to my cash flow. Today, there are lots of stopgaps in place for most consumers so they don't have to worry about an overdraft. Or do they?
I can't be out of money; I still have checksThree things can happen when you spend money—by writing a check, using a debit card, or authorizing an automated debit (ACH)—and don't have funds to back it up in your share draft/checking account:
• Overdraft—You don't have the money in your account to cover that transaction, but your credit union covers the payment for you anyway.
• NSF—You get dinged with a nonsufficient funds (NSF) fee when you don't have the funds and your financial institution does not pay it and returns the check to the party you wrote it to.
• Returned check fee—A store or plumber or landlord receiving an NSF payment back might in turn charge you a fee for the returned check or payment.
• Link to other accounts—You arrange in advance for the credit union to transfer funds from, say, your savings account in case you don't have enough in checking to cover a transaction.
• Line of credit—You apply for a line of credit just as you would for a signature loan. Once it's available, the credit union transfers a matching amount from the line of credit into your checking account if you overdraw your checking account.
• Courtesy pay— If you have this convenience set up and then overdraw your checking account, courtesy pay, also called bounce privilege, works like this: Funds to cover overdrafts will come from your linked account first; if funds aren't there, the credit union may choose to cover your overdrafts up to a certain amount.
Ask someone at your credit union what overdraft services it offers.
Fair warningIt's great to have options in case you overdraw your checking account, but it should be a rare occurrence if it happens at all. Consider an overdraft a wake-up call that you need to pay better attention to your balances and spending habits. These days we have to focus on more ways that money flows from our accounts than in the past. It's easy to make an ATM withdrawal, use a debit card to pay for dinner and a movie and then to pick up some groceries, and overlook that you paid your mortgage by ACH. The burden is on you to know where you stand as all these transactions take place. It requires that you keep track of when bills come in and payments are due, and record transactions in your check register—including every ATM and debit card use, ACH payment, fee, deposit, and cash withdrawal. One way to do that is to use your credit union's online banking services. It gives you 24/7 access to your account so you can monitor your balance and keep a close eye on any fraudulent use of your accounts as well. If you share an account with a spouse, it can be an even bigger challenge to stay aware of each other's expenditures so you don't inadvertently overdraw the shared account. Again, online access gives you daily updates about your balances. Another simple service, often overlooked, is direct deposit of your paychecks and any other recurring deposits, say, for Social Security or pensions. Make it easy on yourself—use direct deposit and you won't have to worry about whether or not your deposits make it into your account on time. Bottom line: Don't let the ease of covering overdrafts lull you into sloppy money management habits. If you experience an overdraft more than occasionally, step back and figure out why—and how you can avoid it in the future.
Financial Fitness ChallengeRemember to register for the Financial Fitness Challenge. Each month we'll randomly select five winners to receive $50 Visa gift cards; we'll choose each month's winners only from that month's entries, so enter often.
Susan Tiffany, CCUFC