Beware of spending too much on checking

OK, let's be honest: When was the last time you balanced your checkbook?

We're talking about sitting down with a check register and entering deposits, withdrawals, what you spent on fast food with a debit card, and any banking fees.

Haven't bothered to balance lately?

"No one under the age of 30 is balancing a checkbook ever," said Mark Ranta, director of retail banking product management for ACI Worldwide headquartered in Naples, Fla.
"I haven't touched a checkbook register since I was probably 17," said Ranta, 32, who is based in the greater New York area.

He looks at his Mint.com app, an online budget tracking service, to review his accounts every day.

Sure, some millennials and others still balance the books to keep an eye on their financial health. But plenty of people aren't filling in the lines on checkbook registers.

But as we mix digital banking with paper checks, we can run into ways to trigger shortfalls, overdrafts and just goof up. And the rules of the game can often change.

Beginning on Aug. 20, for example, Chase will no longer allow its checking account customers to use their credit card as a backup to provide overdraft protection to avoid bounced checks. You'd need to link that checking account to a savings account for overdraft coverage to avoid high overdraft fees.

Granted linking your checking account to a savings account can be a less costly way to go. You'd cover an honest mistake with real money in savings. You often pay a nominal fee of $5 or $10 if you triggered such transfers but you'd avoid the $35 overdraft fees.

Chase, as part of the change, is dropping a $10 overdraft protection transfer fee to shift money from savings to checking.

Greg McBride, chief financial analyst at Bankrate.com, said the Chase move to discontinue linking a credit card to a checking account and ditching that $10 fee is actually a  "consumer-friendly change."

Linking a checking account to a credit card can be more expensive because you're paying interest. At Chase, you'd pay interest from the date of the transfer based on overdraft advance rate for your credit card.

All fees don't go away. Because of federal regulations, banks discourage consumers from treating a savings account like a checking account. Chase charges a $5 fee for each withdrawal or transfer from a savings account after six per monthly statement period.

Not everyone is celebrating this change at Chase.

“While the concept is positive for the consumer as their own money will cover the shortfall rather than having to borrow from the bank at greater expense, there are plenty of consumers who will still complain," McBride said.

Banking experts say the change at Chase could be a preemptive move to prepare for steps that the Consumer Financial Protection Bureau might take in the future regarding overdraft regulations.

The CFPB is doing more research before issuing a preliminary proposal, possibly later this year.

Some issues under review: How consumers opt-in to accepting overdraft protection and fees for ATM and one-time debit card transactions, fee structures, and involuntary account closures.

How can you protect yourself from the high costs of bounced checks:

•Don't always bank on the dollars you spot online. Ranta, of ACI Worldwide, noted that we're not always seeing real-time numbers when we view balances online or taking into account bills on the verge of being paid.

Say you go online and spot $400 in checking on Tuesday -- and then spend $100 at Target.

But on Wednesday, your $400 monthly car payment is automatically paid out of checking. You're now looking at a $100 overdraft.

By going online daily, Ranta said, he's more familiar with when checks will post and when bills will be paid, giving him a more realistic view of his financial picture.

"There are all these pieces that are connected to your account," he said.

Look for words like "available balance," too, so that you don't overestimate what you have in the account because a check that you deposited has yet to clear.

•Set up alerts. If you set up an e-mail alert or text alert, banks can notify you when your balance is below a set amount. Or you can be notified when a withdrawal, deposit or check posts to your account.

Ken Tumin, founder and editor of DepositAccounts.com, said setting up email or text alerts can remind consumers to make sure that they need to get more money into a checking account.

Consumers who link a savings account to checking, he said, should track spending and avoid seeing money transferred from savings to checking more than six times a month. Remember, you could be seeing $5 withdrawal limit fees that can add up over time, especially for active debit card users.

•Know exactly how you might get zapped with high fees with a debit card. Rebecca Borné, an attorney for the Center for Responsible Lending, said many consumers lose huge sums of money toward fees by using a debit card without realizing their account is short of cash.

"At that moment, it's like, 'Here's your coffee,'" Borné said.

But the $5 cup of coffee in the morning could trigger a $35 overdraft fee.

A way to avoid those fees is to make sure you don't agree to "opt-in" for debit card coverage. It can be confusing but by not "opting-in" your debit card transaction is declined at the point of sale, if you don't have enough money. That saves you from getting socked with a $35 overdraft fee.

A Federal Reserve ruling requires banks and credit unions to obtain customer consent through an opt-in policy before charging an overdraft fee to let a debit-card transaction go through when the account is short. But you're giving this consent, often when you sign up for the account and you're answering 20 other questions on the spot.

Borné, who has written on how overdraft fees harm consumers, would like to see more limits on how often overdraft fees can be charged and limits on the size of fees. Estimates indicate that nearly 2 million consumers pay 20 or more overdraft fees a year, translating into $700 or more a year.

Worse yet, of course, the fees add up in sporadic episodes, creating even more havoc for already tight budgets.

Detroit Free Press


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