A quiet revolution is occurring in U.S. checking accounts, and it's making a lot of people a lot poorer.
A few years ago, banks would typically decline an ATM, debit card or check transaction if there wasn't enough money in the customer's account.
Today, however, many banks and credit unions routinely allow these transactions to go through and then slam their customers with overdraft fees. A single $5 transaction can trigger a $30 to $35 overdraft fee, while a series of overdraft transactions in a single day can rack up hundreds of dollars in fees, usually without warning to the customer.
These policies, often marketed as "courtesy overdraft" or "bounce protection," have caught on like wildfire: The number of financial institutions employing fee-based overdraft services grew 80% between 2003 and 2005 to 3,500, according to the Center for Responsible Lending, and the fees charged now top $17.5 billion a year.
The people most at risk are consumers who routinely have low balances or who don't keep careful track of their transactions. If that describes you, you really need to change the way you bank to avoid getting flayed alive by fees.
Of course, it would be great if you suddenly became meticulous about recording your transactions and regularly balancing your account. Assuming that doesn't happen, though, there are still things you can do to help bounce-proof your account. Here are some of the ways.
Stop writing checksHere's the problem with checks: They either clear too quickly or too slowly.
Federal Check 21 regulations have all but eliminated float, the time it used to take checks to clear the bank. So those who write checks against money that isn't there -- say, a day or two before their paychecks are deposited -- are bouncing more transactions.
At the same time, you have little control over when a person or business actually deposits your check and starts the clearing process. Someone who delays depositing your payment for days, weeks or months can really mess you up if you don't keep close track of your outstanding checks.
Electronic transactions are, by contrast, a lot more predictable. Using online bill-payment systems allows you to specify when a payment leaves your account. ATM transactions are reflected almost immediately in your balance; debit-card payments using a personal-identification number typically show up the same day.
Debit-card transactions using a signature -- that is, when you sign for your purchase as if you were using a credit card -- may take a few days to clear, so you might want to avoid those if keeping track of your balances is a problem.