Transaction rearranging for overdraft fees.

Posted By Paul

I read an article that stated how many banks will rearrange the order of transactions as a way to charge you overdraft fees.

Here is a hypothetical example. Say you have $50 in your account and then you use your debit card that day:

8:00 AM $10 Breakfast.
noon $25 at the grocery store.
6PM $50 dinner

So you figure that the 6PM transaction should be considered an overdraft, you feel stupid but oh well it's just one time.

Instead the bank decides to process the transactions for the day in this order:

6PM $50 dinner
noon $25 at the grocery store.
8:00 AM $10 Breakfast.

So now you've overdrawn your account twice, causing you to incur the penalty twice.

If this sort of thing happens over the weekend you can end up with multiple overdraft penalties that easily add up to $100 or more.

You may call this unfair, maybe even think it's the banks setting you up so they can steal more fees from your account, but at the time of this posting this practice is perfectly legal.

My take away from all this? This is all just one more reason to avoid living paycheck to paycheck. The scenario I drew out above becomes a non-issue if you just put a buffer in your checking account to avoid this sort of thing.

Back before online banking was common I knew people that would subtract $100 from their balance in their checking account ledger. That way they always had a $100 buffer in their checking account just in case.

That system or the equivalent is still a great thing to do today. If you find yourself in a place where you are constantly worried about overdrawing your account then you are probably living a paycheck-to-paycheck lifestyle. Overdraft fees are just one more symptom of a problem that comes down to how you handle your money. I would suggest in the short term to make a real effort to build up a checking account buffer (this can be as easy as cutting out Starbucks or Netflix for a while and putting the money towards your checking account).

In the long term, you should look over your financial life and see how you can improve it. Maybe one of my really early posts:

My Financial Philosophy

Is a good place to start.

Article: How Safe Is Your Bank

Posted By Paul

A friend sent us this link to an interesting page that tries to provide a rating to represent the strength of a bank.

Might be a good thing to keep an eye on in the next few months:

How Safe Is Your Bank

How do you pay YOUR pals?

Posted by Matt

Have you ever made a purchase on eBay? If so, you probably paid for it via PayPal, right? Paypal is a company whose website allows its users to transfer money to each other electronically. I've had an account with PayPal since 2001, but only used it a handful of times, partially due to the limitation of only being able to send money to other PayPal account holders.

Whenever I need to send someone money these days, I can just log into my bank's website and have the bank mail them a check. Easy, right? I was also a recipient of these types of payments when our previous renters added us as a payee in their bank's online bill pay system and then set up a recurring monthly payment. I appreciated the regular payments, but when we got our new renters this year, I thought, "there must be some way to automate this even further." I like to think of myself as efficient; some readers will call me too lazy to even cash a check...it's all the same to me.

Anyway, I wanted to share what I learned. My bank offers an option called "Bank by Mail" and here's how it works:

Our renters added us as a payee in their bank's online bill pay system. For the payee address, they listed my bank's bank-by-mail address (a PO box). They then added our bank account number as the account number for the payee and set up a recurring monthly payment. Each month on a set day, their bank prints and mails a check to my bank. My bank then processes the check and deposits it into my account. (My guess is that banks will eventually set something up to replace the snail mail/paper check part of the process with an Internet transaction of some sort. My bank has gotten as far as allowing me to transfer electronically to other individuals within the same bank already.)

The point of all this is that, after the initial setup, the transfer is completely automatic from the perspective of the sender and recipient. Fantastic as this is, I've only used bank-by-mail in the situation described above, so far. I wasn't too paranoid about giving out my checking account number to our renters, given that I'd already elected to trust them with a house worth over 100 times what I have in that account, but I don't want to share my account numbers with just anyone.

Time will tell whether I find other uses for the system, but I love what it is doing for me so far!