Why am I overdrawn again?
I get it, overdrawing my account could land me in jail. Can I come out now, please?
Are you overwhelmed with an overdrawn bank account several times a month (or a week)? You are not alone, many people do because it's hard to know how the system works. Many people check their account balance and assume they have plenty of money based on that balance. The truth is that many transactions do not go through at the time they are completed. This means the balance you see when you check at the bank, on line, or at an ATM could be, and usually is, incomplete and therefore, incorrect. (It does not mean that the bank made a mistake.) I would like to explain how everything works (or at least some of it) and maybe you will have a little easier time with your bank account.
Maintaining an "unhealthy" account (many overdrafts and bouncy checks) could send you to jail for fraud. By learning how to monitor your correct balance, you can avoid these problems in the future. No more overwhelming!
That bank took my money because I was overdrawn. Should have kept my ATM in my wallet! I am so mad........
Deposits of checks and cash
When you deposit a check into a bank account, whether it is a savings account or a checking account, the bank takes your check and gives you a deposit slip telling you your new balance. What the slip doesn't say, and what many banks fail to tell you, is that if the item is a personal check, out of state check, or business check the bank may "hold" the funds until the check clears the bank it was drawn on. In other words, when your bank actually receives the money from the other bank. This could take from 10 days to 2 weeks, or more if the check is international. Ask your bank if there will be a hold on your funds and how long they expect the hold to be. If you attempt to use the funds of the check before the bank has released it, then you are overdrawing your account.
Cash that you deposit into your bank account is usually available for immediate withdrawal; however, if the deposit was made on a weekend or holiday, the bank does not apply the deposit to your account until the following "business" day which could delay your ability to use the cash. Also, some banks have a limit on how much you can withdraw at one time, how often you withdraw from the account, or a daily amount limit for withdrawals.
If you need the money immediately, such as going out with friends Saturday night, try cashing your check at a store or something similar. They will, most likely, charge you a small fee for cashing the check, but at least you have the rest of the money. If the check is a personal check, though, most stores will not cash it unless it is your check made out to them and you have purchased a certain amount of product.
This is what some deposit slips looks like, others may be slightly different, but the information required will be the same.
Checks you write:
Checks that you write against your account could be processed by your bank immediately or up to 10 days after you write the check depending on when the company deposits the check, which bank they use, and whether it is a weekend or holiday. Many companies now use "electronic funds transfer" which means they send the check information through the phone lines and the bank "reserves" the money for that company and the funds are electronically transferred to them. This means that the funds are sent immediately even though you wrote a check.
Never expect that a check will not be processed immediately by the company accepting your check. Writing a check that you do not have the funds to cover is called writing a "bounced" or "rubber" check and is illegal. Accidents do happen and miscalculations can cause you to overdraw your account, but the bank will not be tolerant if the "miscalculations" happen too often.
When writing a personal check, or cashing another companies check, a bank or store may ask for your ID to ensure the check is yours. Try not to get angry if they ask you to identify yourself because the practice is a protection for all people. How you ask? If someone steals a check from you and tries to cash it somewhere, the store, bank, or company will know the check is fraud and will not take it. Thus you are saved from having your money stolen.
Be sure to write down fees and automatic withdrawal amounts in your check register immediately so that you always know how much you actually have in the bank. Then you can go get that massage or go to the gym knowing your account will not be overdrawn when you pay for them.
Ahh, nothing like a good massage and then a quick catnap to renew the energy.
Banks have fees for just about everything. Each bank is different in the amounts and types of fees charged, so check with you bank for their fee policies. Fees are applied to your account immediately but you do not usually see them until you receive your bank statement. Therefore, you should always be aware of what fees your bank will charge you and record them immediately so that you do not attempt to use the money in some other way.
Fees are usually done in the following manner (NOTE: these are only examples and do not cover the entire list of what banks may charge since every bank is different):
- ATM fees-many banks charge ATM fees just for using their ATM (that is usually noted at the time of the transaction), but in addition to that fee, many banks will charge an additional fee if the ATM you used was not in their network.
- Savings and checking fees-Many banks charge service fees for their various accounts. Some of those fees can be waived if you do specific things such as keep a minimum balance in the account or use direct deposit.
- Withdrawal fees-overdraft fees-These are charged by the bank for too many withdrawals, withdrawals that are done too soon, or withdrawals that put your account in the red (means you have tried to use more money than you have in your account). These fees can add up very quickly and often do not show up right away which means you could be overdrawn in your account because of a fee and not be aware of it. Always check with you bank to see what fees they charge, when they charge them, and how much they will charge..
- Non-use fees-if you have an agreement with the bank that your account will be used at least once monthly (be sure to read the fine print when opening an account because that is often one of the stipulations) and you haven't used your account (maybe you want the interest to add up or you are waiting for some type of paycheck, etc), the bank may charge you a non-use fee. These fees happen without notification and often drain your account before you knew they were being charged.
What do those words mean?
Now that some of the charges are clear to you, let me explain what some of the words banks use mean:
- Overdraft-an overdraft (also known as overdrawn or insufficient funds) is when you try to remove more money than you have available in the account. It may be by writing a check, using an ATM, transferring money, or going to the bank to take money out. Overdrafts will cause fees to be charged to your account. (debit). Be careful because companies who received payment from you when your account can not cover the payment, will also charge fees.
- Credit-a credit is an addition to your account-credits might be deposits or corrections. A credit means that your account will increase by that amount.
- Debit-a debit is a subtraction from your account-debits might be fees, checks written, ATM withdrawals, or transfers. A debit means that your account will decrease by that amount.
- Deposit-a deposit is an amount of money that is put into your account by you and could be by check, cash, or transfer. A deposit increases your account by that amount. (credit)
- Withdrawal-a withdrawal is a removal of funds from your account through automatic payments that you have authorized, transfers, checks you have written, or cash that you have removed. A withdrawal will decrease you account by that amount. (debit)
- Interest-interest is when your checking account or savings account earns money based on rates and amounts. Interest is usually added to an account as a credit; unless it is being charged on a loan in which case it will be added to your balance owed.
This is an example of a check register that can be used to record your transactions so that you always know your correct balance.
Are you familiar with how your bank conducts business?See results without voting
How it all works:
Banks usually handle the money in your account in different ways depending on the type of bank you use and the amount of money you have in the bank.
- When you open a checking or savings account, you put money into that account. The bank then uses that money by adding it to other accounts and then loaning it out or investing it. When they invest the money or loan it out, they make money with it. Because a portion of what they made money on was your money, they pay you interest on that money based on amount, length of time they have it, etc. Banks do not always use your money depending on what type of account you have.
- Now you have an account with an amount of money that you have deposited. Check with your bank to see when that money will be available for you to use. Some allow the funds to be used right away and some do not based on their rules of handling funds.
- ATM or debit cards-these are cards that are attached to your bank account and allow you to pay for things or get money out of your account electronically. You should have some type of record that you use to record your withdrawals so that you can track your money and know how much is left. ATM withdrawals are usually removed from your account immediately--be aware of all ATM fees and record them at the time of the transaction. When an debit card has a credit card symbol on it, it means the card can be used as a credit card (but the same rules of a debit card will remain the same. When you use the card as a credit card, it means you won't have to put in a pin number.
- Checks-checks are written to make payments based on your account balance. Check amounts do not get taken out of your account right away because it usually takes a few days for the check to be presented to your bank for payment. Unless the company uses electronic transfer programs which allows the company to present your check for payment electronically. That means it may be taken out immediately. Never count on the money withdrawal being late, that could spell disaster for your account, and you.
I overdrew my account again. Do you think the witch hat will be a good disguise to keep the bank from finding me?
Checking your balance:
If you use on-line banking or ATM balance checks---Be aware that some of your transactions may not have been processed at the time you check your balance. That means that even if the bank says you have $XXX amount in the account, that may not be correct if you have conducted transactions that have not yet been recorded. Recording and tracking your transactions yourself is the only way to know your correct balance.
© 2011 Cheryl Simonds
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