Costly Debit Card Overdraft Fees

The cost of using debit cards can really add up…

Debit cards are not always the sure-fire way to avoid the cost of using a credit card– and many consumers find out the hard way. Assuming their spending is limited by the amount of money in their bank account, consumers often use debit cards indiscriminately. Unaware that they can spend over the limit and create an overdraft, they’re shocked to find out their bank has approved transactions even though there were insufficient funds available in their account– resulting in numerous, costly over-the-limit fees.

According to research by Ipsos-Reid for The American Bankers Association, an industry trade group, over 33% of all store purchases are made using a debit card – up from 21% six years ago. Not surprisingly, 20% of Americans paid overdraft fees over the past year.

The problem occurs because new transactions can take anywhere from 24 to 72 hours to post to your bank account. Financial institutions will automatically continue to advance funds– whether the account balance is up-to-date or not. If you’ve made purchases that haven’t posted to your account yet, the financial institution will continue to allow you to use your card until the transactions have posted and your account gets overdrawn.

Consumers are charged an average of $34 per over-the-limit transaction. The fee kicks in even if the overdraft was only for a few dollars. For every purchase you make until your bank account is updated, you’ll continue pay an overdraft fee for every transaction. For example, if you unknowingly overdraw your account, then go to the grocery store and buy $40 worth of groceries, stop and get $20 in gas, purchase some coffee and then go to lunch– you’ll create 5 over-the-limit charges adding up to $170.

If it’s only your first offense– don’t panic.  Your bank will often sympathize with you about the excessive overdraft fees. Call or visit your local branch and talk to a manager. Many times they’ll be willing to remove some (or all) of the overdraft charges if you give them a good explanation or make a big fuss about the excessive penalties.

Using a debit card is just like writing checks or using a checkbook. Keep all your receipts and balance your account after every transaction. Take advantage of online banking to make sure your numbers match anytime there’s confusion. This will help you avoid overdraft fees and reduce the cost of using your debit card.