Many people complain – and rightfully so – about the outrageous fees associated with bank overdrafts. Overdraft fees are one of the more insidious methods used by banks to shake down their customers.
As a result, even those who carefully monitor the funds in their checking accounts occasionally slip up and get nailed with these charges. However, the way to overcome this problem is to not live on the edge where you have to micro-manage your checking account.
Take a certain amount from your savings account and move it over to your checking account to use as a floor. For example, I keep $1000 in my checking account that I don’t count and don’t intend to use any time in the near future. When my checking account gets down to this amount, I count it as zero. That way, I never have to worry about overdrafts. By the way, I have an interest-bearing checking account, so I am getting interest on this money, just as I would by keeping it in a savings account.
However, as an even better alternative to avoid overdrafts, some banks offer their customers the opportunity to tie their checking accounts to their savings accounts. Here’s how this works: When a customer writes a check for more than they have in their checking account, the bank will automatically pull the extra money from the person’s savings account, generally without charging any fee. If you keep an amount in your savings account equivalent to six to nine months worth of your net income, as many financial experts advise, then that should be far more than enough to prevent any possible overdraft.
In addition, one trick I use is what I call a plus-for-them/minus-for-me rounding method. I manage my checking account in whole dollars only. When I make a deposit, I do not count the change; when I write a check, I round up to the next whole dollar, regardless of the amount of change. For example, when I deposit a check for $120.30, I only add $120 to my running total, dropping the change. However, when I write a check for that particular amount, I subtract $121 from my running total. This adds up over time. That way, I almost always have more in my checking account than I think I do.
These simple techniques should allow one to always steer clear of bank overdrafts and the painful fees that come with them. That way, the costs associated utilizing a check accounting will be minimal, or possibly even free – as they should be.