What Is An Overdraft?
Don't be shocked if a small miscue becomes a big money drain called overdraft fees.
(Editor’s Note: Personal Money Market does not offer legal advice. Consult a legal professional if you have questions. The opinions and experiences expressed in this article are those of the author and do not reflect the stance or judgment of Personal Money Market, its affiliates or subsidiaries.)
An overdraft takes place when withdrawals from a bank account exceed the available balance. Some accounts may have a prearranged limit that allows the account to become overdrawn, but the majority of people don’t have this and are charged extortionate overdraft fees.
Why the Overdraft Fees?
It has happened to all of us at one point or another, and there are a multitude of possible reasons why… such as:
- A delay in ATM communication resulting in unavailable funds being used
- The bank charges an unexpected fee
- A personal check has bounced
- Perhaps you may have just misjudged your available balance
When this happens, your credit score takes a dive and you usually get charged another unnecessary fee. All the banks differ with the allowances available and the measures they take when someone accidentally becomes overdrawn. Overdraft fees are there to serve as a reminder that you have exceeded your limit and act as administration charges for the extra work involved in the process. Banks have made a mistake here in their terms and conditions as far as I’m concerned (and I believe most would agree). The fees far outweigh any possible administration costs.
Two Years and £1,500/$2,500
Previously, I had an account with a High Street bank in the UK that offered the usual services and worked well for me. Over the years, however, there were small fees charged for overdraft and other unknown reasons. After researching this problem on the Web, I discovered an excellent forum that explained how to take your bank to small claims court for the fines charged and paid by the account holder. They offered all the templates.
Out of curiosity and the possibility of revenge, I took action. I asked the bank to send all the previous statements and made a tally of the fines and charges applied to my account since the start. The charges added up over time; I was surprised to see the amount accumulate to around £1,500 ($2,500 U.S.) I filed the forms and sent them off, threatening to take the bank to court on the grounds that they had fined me too heavily over the years. We traded letters for a couple of months before the bank made an offer of £800/$1,350, which I happily accepted since I didn’t feel like attending court. After the check was issued, they closed my account, which is not surprising.
A Nasty Travelling Surprise
While I was travelling around Australia, I made every effort to keep on top of my balance at home. It can be tricky. If you end up coming close to the mark due to the delay of international withdrawal charges as I did, the result is that I was around £2/$3.50 overdrawn. The bank failed to contact me directly, even though they were aware I was abroad. They began to charge daily fees of £5/$8.50.
This is a new practice for most banks, as they think it is fairer than charging a fee once a month. That is a load of nonsense! A few weeks later when I finally had access to the internet and could check my account I found that I was not a little but instead £95/$158 overdrawn! Quite frankly that is a joke; under normal circumstances I wouldn’t put up with it however at the moment they are not accepting claims as they are currently in court over a similar issue and I can´t afford to risk the account being closed. After issuing the check, they ceremoniously closed the account. This didn’t surprise me in the least. Be prepared for such treatment if you plan to rectify any daylight robbery that you may be experiencing.
Get Overdraft Protection
Overdraft fees are an ongoing problem, but can be avoided if you take care. Ask your bank if they offer overdraft protection, a service offered to protect you in the event that for whatever reason your account drops from the green into the black. In the event that you know you won’t have money to cover and the bank won’t help, payday loans can also help.
Another option is common sense: Keep on top of it! Make sure you understand exactly how much money you have in your account before making purchases or if you are going to be charged for any reason. In the event that you know you will become overdrawn before it happens, call the bank and ask them if there is an economically friendly solution – if only a temporary one. It seems wrong to say, but remember that the easiest way to stop yourself being charged overdraft fees is by not going over in the first place.
