by Mark P Cussen, CFP, CMFC 
Josh looked at his bank account balance on his computer screen and groaned. He forgot that his 6-month car insurance premium would be automatically debited this month. That meant that he had had $585 less in his account than he realized, and he had made several debit purchases in the past two days--all of which would have been covered, of course, had the debit not hit. But now he was overdrawn by nearly a thousand dollars, after both his debits and the corresponding $25 overdraft fee for each purchase had hit his account.
Josh's predicament is all too familiar for millions of Americans who have inadvertently spent more than they had in their checking accounts, either knowingly or otherwise. An economic research firm reported that banks raked in a whopping $37 billion in overdraft fees from customers in 2008 alone. Another report from the FDIC revealed that three out of four banks now automatically enroll their customers in overdraft protection plans, plans that allow the bank to automatically remunerate merchants for purchases made by customers who have no money to cover them--and then charge the customer an overdraft fee, which can run as high as $38.
Of course, this creates a vicious cycle for customers who try to get their accounts right-side up again; many times the overdraft fees will exceed the amount of funds that a customer can deposit to cover their shortfall. For example, a customer has a checking account balance of $150, but a periodic debit of $200 hits the account. If the customer makes four additional purchases totaling $45 the same day that the debit hits, then he or she will have to repay $95 of purchases plus four overdraft fees. If the overdraft fee is $35, then the customer has to come up with $130 to bring the account out of the red. Perhaps most annoyingly, most banks will charge the largest debit first in order to collect the maximum amount of fees possible. If you have $45 in your account and make purchases of $50, $35, $20 and $10, the bank will apply the $50 purchase first, thus rendering your account overdrawn with the first purchase. Then they will charge you a fee for all four purchases.
Fortunately, there are several things that you can do to avoid these charges. Learn how you can put the lid on bank fees and keep your hard-earned cash for yourself.
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