It's an experience many of us have had—you are going through your mail and there's a mysterious little note from your bank, or perhaps even two or three in the same day's mail. You open it and find the wonderful announcement that somehow you have overdrawn your bank account and, to add insult to injury, the bank has just added another $25 or $30 charge to your account for insufficient funds. Almost immediately, your mind shifts into calculator mode for two reasons: first, to determine how many other checks or debit purchases were made on that account and second, to figure out what the final amount of bank charges may be. The causes of the situation can be varied—from two people writing checks and debiting from the same account to simply forgetting to enter a debit in your checkbook register. Whatever the cause or reason, the result is still the same, and those dreaded bank charges take even more money when the money wasn't in your account in the first place!

With today's hectic family schedule and the multitude of options available for making purchases and payments, it's no wonder that occasionally a check will bounce. But with a little extra planning and by keeping a few simple tips in mind, you can set a plan in place that can help you avoid those nasty insufficient funds fees in the future. The Federal Reserve Board notes that overdrafts and bounced check fees occur when you write a check, withdraw money from an automatic teller machine (ATM), make a purchase with a debit card, or make an electronic payment or automatic bill payment for more than the amount in your checking account—thus overdrawing your account. Some banks and credit unions will pay the amount and charge you an "overdraft" fee. If the bank chooses not to make the payment and returns the check, you may be charged a "bounced check" or "non-sufficient funds" fee. In addition, the company or person to whom you made the payment (the cable company, supermarket, your mortgage holder) will most likely charge you a "returned check" fee in on top of the fees that have been charged by your bank.

The Federal Reserve Board offers the following suggestions on avoiding bounced check and overdraft fees:

• Keep track of the balance in your checking account by keeping your account register current. Record all checks when you write them and other transactions at the time you make them. Remember to subtract any fees (such as the $1 or $2 service fee charged by ATM machines out of your bank's ATM system).
• Remember to account for any automatic bill payments that you may have scheduled for insurance, loan payments, or utilities.
• Pay close attention to your account balance and remember that it takes time for some automatic payments and checks to clear.
• Be sure to record all electronic transactions including debit purchases, online payments, ATM withdrawals and fees as well as deposits, withdrawals, and transfers between savings and checking accounts.
• Carefully review and balance your account statements each month. In between statements, you can check on what payments have cleared and monitor your account balance by accessing your account online, by calling your bank, or at an ATM.

No matter how conscientious and diligent you are, occasionally a mistake does happen and your account may become overdrawn. The Federal Reserve notes that as soon as you become aware of the problem, deposit money into the account to cover the overdraft amount and any fees charged by your bank, and to help you avoid accumulating any additional overdrafts and fees. Luckily, there are a few steps you can take to provide a level of protection in case you do inadvertently overdraw your account. The Federal Reserve Board advises that you should check with your bank or credit union about any overdraft protection options they may offer. Some possible options include:

• Linking your checking account to the savings account you have with the bank. In the event you overdraw your checking account, the bank can transfer funds from your savings to checking. Be sure to ask the bank about any transfer fees.
• Establish an overdraft line of credit with the bank. You apply for this line of credit just as you would apply for a loan. If your account becomes overdrawn, the bank lends you the funds by using your line of credit to cover the overdraft. You will pay interest on the loan and there may be annual fees involved.
• Linking your account to a credit card you have with the bank. By doing so, any overdraft amount becomes a cash advance on your credit card. A cash advance fee may apply and interest charges on the advance begin immediately.

As with most things in life—mistakes happen. When it happens in your checking account, it can cost you money. Keeping your checkbook ledger current, balancing your monthly statements, and periodically checking your account activity online will go a long way toward reducing your chances of an inadvertent overdraft of your account. You work hard for your money, make sure you do everything in your power to keep from throwing it away as a result of unnecessary fees and charges!

As with any financial matter, please consult with your financial planner or tax adviser regarding your particular situation.

Sources:
Federal Reserve Board—www.federalreserve.gov
Federal Citizen Information Center—www.pueblo.gsa.gov

Articles are provided for the general interest of our readers. Gerber Life Insurance is not responsible for any content and recommends that you consult the appropriate professional with any questions or concerns you may have concerning any financial or health related issues.