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OVERDRAFT PROTECTION PLANS
Almost everyone has bounced a check at one time in their life. However, some people do so more regularly. The cost for bouncing a check is expensive, usually ranging from $25 - $50. Making the problem worse is the manner in which banks process your checks.

For example, suppose you had $500 in your checking account and wrote five checks totaling $600. The five checks are for $300, $150, $75, $50, and $25. If all of the checks arrived at the bank the same day, the bank could clear the last four checks and bounce the one that is for $300. However, it is more probable that the bank will clear the $300 and the $150 checks, and bounce the remainder being that the next largest check ($75) is not going clear. As a result, you are going to have to pay four non-sufficient funds fees. The reason why banks use this formula for clearing checks is that they assume that the larger checks are the most important payments, i.e. car loans, mortgages.

**Even if you have excellent credit, overdrafting your bank account will result in damaged credit.

How does overdraft protection work?
Overdraft protection is great for people that have a habit of bouncing checks. In order to receive this type of protection from your bank, you are going to need to have two accounts with your bank, i.e. savings, equity line or a credit card. When you overdraw from your checking, the bank will use funds from one of your other accounts to make the payment for you. The bank guarantees payment of your checks as long as you have sufficient funds in any one of your other accounts. Most banks will charge a fee when this occurs. However, the fee is much less than those associated with NSF. In addition you will avoid having to pay the bounced-check fee charge from business you wrote the check to.

It is important to understand that in order you must sign up for overdraft protection with your bank. They will not automatically service you just because you have multiple accounts with them.

What is overdraft privilege (or bounce protection)?
This type of coverage is automatically provided to customers in the event you overdraw from your account. The easiest way to difference bounce protection from overdraft protection is that it is not linked to any of your other accounts and your are automatically enrolled. In fact, you do not even need to have more than one account with your providing bank.

Many consumer groups are unwaveringly against the overdraft privilege program. Banks do not guarantee that your check is going to be paid. It is very common for banks to offer bounce protection only for checks that overdraw your account between $100 - $1,000. If your overdraft is more than that, the bank will likely opt not to pay for your check.

The overdraft and any associated fees will have to be re-paid within 30 days, or even two weeks. If you don't pay within the allowed time-frame, your account will be send to a collection agency.

Your bank will impose a flat fee foe NSF as well as a daily fee of $2 - $10 until your account is brought into balance.

For example, suppose you overdraw your account by $75 and it takes you 20 days to pay it back. If your banks charges a $40 NSF fee and $10/day, you will end up having to pay the hefty sum of $240 plus the amount you overdrew. This scenario makes it simple to understand why many consumer groups consider 'bounce protection' as short-term predatory lending by banks.

Another issue that often occurs with this type of coverage is that banks will often include your overdraft privilege limit when consumers make ATM or phone balance inquiries. As a result, consumers think they have more money available in their account than they actually do and overdraft their accounts.


 

 

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