No doubt you have at least one checking account. And, hopefully, you’ve never bounced a check. Still, it helps to know about overdrafts, because someday you may deposit a check from someone else or from a company, write checks against it, and then find out the check you deposited was no good, creating an overdraft.
If your bank offers overdraft protection and you’ve signed up for it, that’s good. But if your account becomes overdrawn, you’ll be socked with an overdraft fee of $30 to $40 for each check you write, plus $5 or so per day, until you deposit enough money to offset the overdraft. So it could cost you hundreds of dollars in fees and affect your reputation with the bank. Also, purposely writing an overdraft is illegal.
You can no longer count on the float to help you. It used to be that if you wrote checks, it could take several days or even a week for it to be deposited by the payees in their banks and then returned to your bank for payment. Not any more. With computers, many stores (e.g., Walgreens; Target) put customers’ checks through a device at the cash register that electronically sends the data to a central computer, and the amount is withdrawn from your checking account the next day. (Or instantly, if the payee uses the same bank you do.)
One way to protect yourself is to keep $100 (or more, depending on your check-writing habits) in reserve in your checking account, so overdrafts can be automatically covered without any action by the bank. Also, if you have a joint account, go over it every day to help ensure the other person doesn’t cause overdrafts. Better yet, don’t have a joint account.
