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Advisory

Advisory  Consumer alert: Overdrawn accounts

Date: 01/01/2010
Organization: Division of Banks
Referenced Sources: Savings and checking accounts

Sometimes, circumstances may occur that cause you to unintentionally overdraw your account or fall a little short.  The Division of Banks (DOB) wants you to be aware of the options available to avoid paying high overdraft costs.

For example, if you wrote two $100 checks ($200 total) but did not have enough money in your account to pay them, your financial institution might charge an overdraft fee ($20-$35) for each item.  The company that you gave the check to may also charge you a fee for a returned check ($25-$35) and possibly a late fee. Your fees could be more than $80 for those two checks.

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Alternative products to choose from

  • Overdraft line of credit with your depository institution
    • A loan attached to your checking account that you can access if you overdraw your account
  • Link your checking account to your savings account
    • Funds automatically transfer from your Savings to your Checking Account when needed
  • Cash advance using a credit card
    • Borrow funds through a cash advance and deposit them into your checking account

Fees typically associated with each option

Product

Fees / Interest Rate*

Total Cost**

APR
Overdraft line of credit (LOAN) 12% APR

$0.92

12%
Linking Checking Account to Savings Account $5 Transfer Fee/transfer

$10.00

130%
Cash Advance using a Credit Card 3% Cash-Advance Fee / 18% APR

$7.38

96%

   * These costs are only examples based on common bank fees and nominal interest rates.
** Cost of specified transaction only; $200 outstanding for 14 days.  There may be other fees associated with the account.

Important tips to remember

  • Good account management will save you the most money
  • Ask your depository institution about all the overdraft protection options they offer.  Review the options and determine which one is best for you
  • You will be able to make a better decision if you prepare in advance
  • You must “opt-in” to your depository institution’s overdraft protection program for ATM & debit card transactions or these transactions will not be automatically covered

Resources

Referenced Sources:
Savings and checking accounts

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