Ledger DC Journal - News, Politics & Crime

How do you avoid the fee thanks banks charge when you overdraft your account? Several banks announced changes to their overdraft rules last week and the charges are substantial, but that won't help you avoid the fee. Only good detail to your check ledger can do that and avoiding spending more money that you have in the bank.

Overdraft Charges From Banks - Avoiding the Fee, Adding Up the Dollars (Image: WENN)

That's not always so simple, so when money runs thin, checks bounce all over. The USA Today had a cover story this week that noted a bounced check for $100 would cost a customer about $27 in overdraft protection fees but the check would be paid. They made a comparison to a pay day loan and though the retail loan folks in the strip mall are a bit higher, it is not by much.


It is huge business for the banks - The Los Angeles Times has a report that estimates the "overdraft fees will total at least $38 billion this year, more than double what banks pocketed from such charges a decade ago."

An editorial from the Journal Times titled "Overdraft scheme must be stopped," has a strong opinion and this handy bit of information on how the fees can add up to a $38 billion a year industry."


The editorial is here and they explain how the fees stack up in what is dubbed the "largest-to-smallest procedure."

They write, "Under the largest-to-smallest procedure, the bank records the largest transaction first. Say a bank customer has a balance of $1,000. He or she goes out and uses a debit card to buy a morning paper and a muffin - $4; took a lunch break and spent $15; and stopped on the way home and paid a couple of bucks for a gallon of milk at the store and maybe $30 for gas. Total charges of $53."

That's a normal day for some folks - and sounds reasonable but here is the trick, according to the Times.

"Late in the day the mortgage payment was deducted from the account. $1,001. Ahh, overdraft there right? It's going to cost the customer $37? Nope."

"Under the largest-to-smallest practice, the mortgage payment comes out first. It bounced. So did the muffin, the lunch, the milk and the gas. That made for five overdraft charges of $37 each - a total of $185." Wow! Is that really fair and will these new rules help?