overdraft - Money Relationship

This will probably be a short post but I still wanted to address this important topic. With many individuals now becoming victims of identity theft, it’s important to know the amounts that you may be liable for if your credit/debit card is stolen.

Debit Cards

As many of you already know, debit cards are typically linked to your checking account and give you instant access to the funds that you have in your account. It is different from a credit card because you are using your available funds to pay for the item and are not borrowing money. However, you should be careful of the unlimited overdrafts because those banks will just let you keep buying! That makes it possible to rack up hundreds of dollars in overdraft fees in one day.

Even though debit cards are typically praised for their ability to control spending, they can be rather costly if they are ever stolen. With a debit card, if you neglect to notify the bank within two days of it being stolen, you can be held liable for as much as $500! You may even have UNLIMITED liablity if you fail to report an unauthorized transfer with sixty days of when the bank sent you the statement with the unauthorized transfer shown on it. Another bad thing about debit cards is that if your card is fraudulently used by someone that you previously gave your PIN to, you may be held responsible for all of their fraudulent charges. For example, if you gave your card to your nephew to use (and gave him your PIN) several months ago for $20 at the ATM and he later steals your card and wipes out $3000 in your checking, you will be held responsible for those charges.

My advice would be to contact your bank as soon as you notice that you debit card is gone. Even if you think you accidentally just left it at the grocery store, call them right away. It’s better to be safe than sorry and it might save you quite a few bucks. Both VISA and MasterCard have “zero liability” policies that limit fraudulent purchases used as a credit transaction (not using your PIN). However, they do not apply when you use your debit card at an ATM and for many PIN purchases.

Credit Cards

Credit cards allow you to borrow money to pay for items. If you do not pay off the balance due at the end of the month, you will be charged interest on that borrowed money. While this can be risky (just ask the millions of Americans in credit card debt), the credit card does offer you better protection against fraudulent charges.

Thanks to the Truth in Lending Act, a credit card holders liability for a lost or stolen credit card is limited. If you notify the card issuer within two days of a lost or stolen card, you are not legally held responsible for any fraudulent charges. If you notify the card issuer after two days the most you can be held liable for is $50. Many credit card companies will waive this $50 charge as a good gesture.

Although you liability is more limited with credit cards, it’s still crucial that you contact the issuer as soon as you think your card has been misplaced.

Does anyone have card fraud experiences that would like to share? How much were you held liable for?

In a recent article by CNN Money, they mention the raw deal that you get from a banks overdraft protection. Typically, banks offer you this ‘protection’ and automatically approve a transaction, even if you do not have the money in the account. The convenience or overdraft fee for this can range up to $40 or more. So if you overdraw on your account by $1, you are slapped with a $40 fee! I really don’t think that you made out to well on that loan from the bank! Obviously, the higher the amount of the overdraft, the less the fee hurts.

Some banks are now allowing you to opt out of overdraft protection, meaning that if you overdraw, they will just deny the purchase (which may get you in trouble other places). Check with your bank to see if they do this. Other banks, like my credit union, allow you to link your savings account to your checking account in case you overdraw. For example, let’s say you have $100 in your checking and $500 in your savings. You write a check for $200 thinking that you have that in your checking. When the bank cashes the check, the bank will take $100 from your savings and automatically deposit it into your checking to cover the amount. The only problem with this system is that you have to have money in your savings account to cover it, which I do not. Some banks even charge for this convenience. Chase charges $5 per occurrence.

Here Are Some Tips to Help You Avoid Overdraft Fees

1. Utilize Your Banks Overdraft Protection Plan

If your bank offers you to link your savings account to your checking account, do it. Even if it costs money to use it, it is still cheaper than the alternative. I certainly would rather pay $5 instead of $40.

2. If You Are Hit With the Fee, Call Your Bank and Explain

This has happened to me several times. I did something stupid and sure enough, I overdrew on my account. I called up my bank and explained what happened. They were rather understanding and decided that since it was my first offense, they would take the fee off as a favor. They said that it would be the only time that they did it. Well, it happened to me again several months later and I called and they did the same thing. I guess the don’t have very good record keeping! So, be persistent and chances are you will have the fee removed or lowered.

3. Keep Good Records

Almost half of all overdraft fees are due to debit cards. Well all think of them as a huge convenience, and they are. You just need to make sure that you record them properly in your checkbook register. This will help eliminate many overdrafts. If you are unaware of you balance, you may make several purchases that put you over your balance and you will be slapped with a fee on each one.

4. Opt Out of Your Banks Overdraft Protection

Many banks allow you to opt out of the convenience of overdraft protection. If you feel that you will always be on the edge of a $0 balance, you might want to opt out.

5. Get Email Alerts

Many banks now offer some type of email alert. You can set it up to let you know if you are within $100 of a zero balance. They also offer other convinient email subscribtions that might be beneficial. I know my bank offers e-mail alerts if I am over a certain limit in spending categories for the month. This makes it a great budgeting tool.

Does anyone else have some techniques that they use to help combat overdraft fees? Does anyone have a horror story that they would like to share in reference to these fees?

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