How to stop overdrawing your bank account


Over at Yahoo Answers, ilovecourtney asks:

How did my account balance go from 25 to -60??? on the account summary [it looks like] it took a little longer for some of the stores to process my money and that I did in fact overdraw. Is that possible?… I thought that money was immediately taken out of your account once you slide your card. Also is there a fine for overdrawing money?

Well, ilovecourtney, welcome to the crowd. Most of us have done this at some stage! Including me. Here’s how it works: when you spend using your credit or debit card, the merchant/store saves your transaction details. At the end of the day, they “clear” all their transactions to their bank in one shot. If the merchant doesn’t clear transactions that night, and waits, it takes longer for your account to reflect that transaction. This means your balance might not include transactions that haven’t finished processing yet!

So, what can you do? Here are two suggestions:

  1. Ask your bank to switch off your account’s ability to overdraw (go below zero).
  2. Always operate your account with a buffer of say, $50-100. Keep that much in your account and consider that amount to be your new “zero”.

When they offer you an overdraft facility, say no thanks. Finally, remember that cash is king. Paying with cash avoids both issues– the processing time and the overdraft fees! In many banks’ cases, this fee can be as much as $35 per overdraft. Usually though, if you go to your bank and explain, they’ll waive this the first one or two times.

This should do the trick.

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