Due to the recent surge in stories on the large number of bank overdraft charges in the U.S. and the U.K., it’s important to remember that the best way to avoid these charges is to always know how much money you have in your bank account.
As we’ve mentioned before, overdraft fees are often the most expensive form of short-term borrowing (over other options like credit cards or payday loans) and can garner an Annual Percentage Rate (APR) up to 3,520 percent! As Smart Money Magazine notes:
Banks process checks and debit card purchases in order of biggest to smallest, rather than sequentially. That means you’re more likely to have multiple overdrafts — and multiple overdraft fees, at an average of $29 a pop…You probably wouldn’t agree to a 17 percent interest rate on a $20 loan — but that’s exactly what you can expect to pay when you use another bank’s ATM this year.
In order to avoid getting hit with these fees (which many times go unannounced to the borrower and quickly snowball), debit card users should always be aware of their bank balance–and in turn–be able to budget how much money they can use or withdraw without going below the minimum balance allowed by their bank. eHow has some tips on how to budget during a recession.
While Congress is working to remedy these unfair charges from banks, borrowers still always need to be responsible for their own finances and remain aware of the limits to their spending budget.
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[...] bank’s website) so that you don’t accidentally incur any of their skyrocketing fees. As we’ve said before, “the best way to avoid these charges is to always know how much money you have in your bank [...]