Understanding Bank Math Helps Avoid Overdraft Fees

Bank customers often complain about bank overdraft fees, saying they don't understand why they were charged a fee when they should have had money in the account.

Colleen of Everett, Wash., says she ran into that very problem and, when she questioned US Bank about it, got a detailed explanation.

"I had $412.00 in my checking account," Colleen told ConsumerAffairs.com. "I went to a US Bank ATM on a Saturday and drew out $400.00, leaving $12 in my account."

The following Monday, Colleen says her husband asked her to make a $38 purchase for him, promising he would transfer $40 into her account that day to cover the charge.

"I made the purchase and when I got home my husband said he had forgot to do the transfer, so we logged onto our Internet banking and transferred the $40. It said the $38 was pending, so we thought we were in the clear."

Two fees, not one

But the next day, Colleen said she logged into her account and saw two overdraft fees, at $33 each. One fee was for the $400 withdrawal and one fee was for the $38 purchase.

"I could understand one fee but not two fees, as I did have $412.00 in my account," Colleen said.

So Colleen said she called the bank and got this explanation: the first fee was assessed as a result of Colleen's $400 withdrawal. Although it was listed as "pending," it reduced her available balance to $12. When she made the $38 purchase, it overdrew her account.

Colleen said she understands that fee and has no argument. But what about the second fee? She was told that when the $400 withdrawal went from pending to active, her account was already overdrawn, triggering a second overdraft fee.

Withdrawal counted twice

But Colleen argued that the $400 withdrawal is being counted twice; once as "pending," reducing her available balance to $12, and a second time, when she was already overdrawn. Despite her protests, she says the bank held firm.

Just last week a judge approved a $410 million settlement with Bank of America and depositors who claimed the bank processed debit card charges in a way to maximize fees. The bank insisted its process was proper, despite the settlement.

The obvious way to avoid this situation in the future is not to opt in to the bank's overdraft "protection." Under new rules consumers must choose to allow banks to cover their overdraft purchases and assess them a fee. It sounds like Colleen has opted in to US Bank's overdraft coverage.

If she had not, here's what would have happened: After Colleen withdrew the $400 from her account and then attempted to make the $38 purchase for her husband, her debit card would have been declined, because she only had $12 in her account. It might have been inconvenient but it would have saved her $66, since it would have prevented both overdraft fees.

Using checking as savings account

Another way to avoid this situation is to keep any savings in your checking account instead of a savings account. Savings accounts produce almost no interest, so keeping an extra $500 or $600 in your checking account will prevent overdraft fees.

You just have to be disciplined and not spend your savings. But it it saves you from $200 or more in overdraft fees each year, it's much better than earning $4 or $5 in interest.