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Preventing & Managing Overdrafts

When was the last time you overdrafted your bank account?

For many people, the experience isn’t just frustrating. It can also be financially painful and trigger negative feelings of shame or embarrassment.

As a community bank, we care about our customers’ well-being. Contrary to the image of greedy bankers collecting fees, we’d rather our customers never experienced an overdraft again.

That’s why we created this article to help you understand and avoid overdraft fees. Our branch employees and customer service representatives are always available to help you understand your account, any fee you’ve been charged, and to offer advice for avoiding future overdrafts.

According to Forbes, Americans paid $34 billion in overdraft fees in 2017.

 

What is an overdraft, anyway?

When you overdraft or overdraw your bank account, it means you don’t have sufficient funds available to cover a purchase you made, a check that cleared that day, or an auto bill payment.

Overdraft fees are charged when your bank processes a transaction in spite of your negative account balance. For example:

On Wednesday your available balance is $655.13. You get paid again on Friday and hope to make it until then without an overdraft. Unfortunately, your $900 check for your kids’ preschool gets cashed on Thursday and your account goes into the negative with an available balance of -$244.87. The same day, you are charged an overdraft fee (the national average is about $35) and your balance goes that much further into the red. Luckily, your direct deposit on Friday will clear up the mess. If your balance stayed negative and more checks or pre-authorized online bill payments cleared, you could rack up additional overdraft or nonsufficient funds fees.

 

The Federal Overdraft Rule

In 2010, a new overdraft rule from The Federal Reserve Board went into effect, giving banking customers the right to opt-in or decline overdraft coverage. At Jefferson Security Bank, we call it Bounce Protection.

This service can be convenient if you don’t want to deal with the hassle of having a returned check or getting your debit card declined. However, it can also result in overdraft fees on small purchases, such as a trip to the coffee shop.

One of the best ways to avoid overdraft fees is to regularly review your account balances.

 

Overdraft Lines of Credit vs. Sweep Protection

Some banks offer overdraft lines of credit to help you manage overdrafts. This is an additional product beyond the basic overdraft protection that all banks let you sign up for. Overdraft credit lines are a revolving credit account, similar to a credit card or HELOC. You can transfer money into and out of your overdraft line if you notice your account balance is close to zero. It can also be triggered automatically if your checking account goes into the negative. You will pay interest on anything you borrow from your overdraft line of credit.

With sweep protection, you can link a savings or second checking account to your primary checking account. Instead of borrowing money to cover an overdraft, your linked account is “sweeped” in increments of $100 to transfer the money to your overdrawn of account. There is usually a transaction fee per sweep, but it is far lower than an overdraft fee.

 

We know you hate fees. Here’s how to avoid them:

In a single year, the 10 largest banks collected $11.45 million in Overdraft Fees, according to the Center for Responsible Lending. As a community bank, we understand why customers are wary of bank fees. That’s why we strive to empower you with the tools you need to avoid overdrafts altogether.

Take advantage of Sweep Protection!

 

Good habits can also help you avoid overdraft fees.

 

Jefferson Security Bank is your local financial partner!

Opened in 1869, we are the oldest bank in Jefferson County, West Virginia. That means we’ve helped generations of individuals and families manage their money and meet their financial goals. Visit one of our West Virginia or Maryland locations to open a new checking or savings account. Our friendly and knowledgeable employees will be happy to answer your questions about bounce or sweep protection and help you choose the right products and services for your lifestyle. Contact us today!

We're dedicated to helping you avoid overdrafts.

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