Bank Tactics

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Banks have taken big financial hits over the past year, in part because of the subprime mortgage meltdown. Now they are scrambling to recapture their losses. One of the ways banks are doing this is by charging fees. Most commonly charged are “bounce fees” and “overdraft fees,” which are punitive charges to customers when they spend more than they have in their accounts.

It used to be that if you didn’t have enough money in your account to cover a check you wrote, an ATM withdrawal or a debit-card purchase, the bank would deny payment. These days, banks and credit unions are far more apt to cover you if you overdraw your account so that they can collect bounce fees. There are two ways that a bank or credit union can cover your overdraft: using its money or using your money.

Bank’s money. Calling it a “courtesy bounce,” the bank may use its own money to float you a short-term loan to cover your mistake. The bank doesn’t ask you whether you want this loan. It just gives it to you and it will cost you dearly. Even if you go over by only a few dollars, prepare to get slapped with a “bounce fee” of $29 to $39 per item. That’s not all. Most banking institutions now charge daily fees of $5 or more each day you remain overdrawn. That’s on top of the original fee and the loan they made to cover your account. If you really mess up and you bounce several checks or keep swiping your debit card without realizing you’ve gone over, the fees just keep piling on.

Your money. Also called “overdraft protection,” this is a provision that you must arrange for ahead of time. You can set up a line of credit (like a credit-card account), called an overdraft protection account, or you can identify a savings account from which you
want the bank to pull the money to cover your overage. You would pay a fee to transfer the funds if this were to happen, but it would be considerably less than a courtesy bounce fee. Your bank or credit union will default to a courtesy bounce plan if you have not taken the steps necessary to set up overdraft protection. Don’t expect the bank to ask for your permission. Courtesy bounce fees have become a lucrative income stream for banks.