How To Avoid Overdraft Fees

If you have a banking account you most likely have over drafted at one time or another. These fees can range from $10 to $38. Most major banks average between $25 and $30 per overdraft, which they usually cap at four per day. These fees can cost you a lot of money if you do not catch it right away. With the current economy most consumers are having troubles from avoiding this problem and as banks struggle to find increased profits they have adjusted policies and raising penalty fees.

A recent New York Times article pointed out that banks are making millions of dollars by charging their large overdraft fees.

“Consumers who overdraw often do not realize that overdraft coverage is automatic and that the bank will not simply cut them off when their balance hits zero. Many banks then refuse to turn off the coverage, even when a consumer calls to request a change.”

Overdraft FeesWith these tough times there are still ways of protecting yourself from getting fee’d to death. By knowing your bank’s overdraft policies, opting into the right protection and also choosing alternatives are ways of avoiding overdraft fees. Most banks allow you to add a credit card onto the checking account so if you where to overdraft the bank would take the funds out of your credit card as a cash advance to cover the negative balance. You still have to be careful because even having a credit card on the account banks still charge a fee, most as low as $5.

Know Your Bank’s Policy

Go into your local bank and ask them what their policy is regarding overdrawn accounts. How much do they charge per overdraft and what kind of protection can you add to your account. Most banks offer over draft protection in the form of using your savings account or a credit card that is added to your checking account. Bank can stop your account from being overdrawn by not allowing your purchases to go over your current balance but most banks will not put this protection on. I have found that you must ask your banker if they can put this protection on your account for you and sometimes they will. The only way to find out is to ask.

Consider Prepaid Debit Cards

Debit cards are a necessity that most people carry instead of cash. Debit cards make transactions so much easier since you do not have to deal with change or cash. When a debit card is connected to a checking account, you still run the risk of overdrafting the account.

An alternative method to avoiding overdraft fees is to get a prepaid debit card. They are the same as any other debit card but not attached to your checking account. This will make it easier to make purchases since you don’t have to deal with exact change and also it will keep you from overdrafting your account. There are many places you can go to get prepaid debit cards, such as any cash advance store like ACE Cash Express. Not only are there no overdraft fees these cards can help you stay within a monthly budget.

Talk to a Bank Manager

When an overdraft fee does happen it can cause a lot of stress but do not panic as you do have options. If you do choose to dispute the overdraft fee(s), do not call customer service. You will be better off by going to your local branch and talking to the manager. Be sure that the fees have already been posted on your account since they cannot do anything until they have posted.

What seems to work best is making an appointment with your bank manager and politely explain your situation. If you have a valid reason, they may be willing to help you out. If this is your first time overdrafting most banks will show grace and reverse the charges. If you have overdrafted before they can still show mercy and reverse one or two of the fees or even completely reverse them all, do not count on that though. Banks have the power to reverse overdraft fees and in tough times they may be more willing to help their loyal customers, so ask and be proactive on reversing your overdraft fees.

American Express Stops Gift Card Fees

New credit card regulations are about to begin, thank God! So American Express has decided to put themselves out in front of their competition early. Instead of waiting for the mandatory regulations kick in they decided that sooner was better than later to make changes. On Wednesday 9/30/09 American Express announced they would eliminate all monthly fees on its gift cards. Before the announcement, American Express would charge a hefty $2 monthly fee on all gift cards that were not used for more than a year after they were purchased. This has been a touchy subject with many consumers who would complain about the fees for unused cards.

American Express Giftcards

Alpesh Chokshi, president of American Express’s Global Prepaid unit, said “Eliminating the monthly fee was now possible because the gift card business had enough scale to remain profitable without the fees. The company will continue to make money from the purchase charge, which ranges from $2.95 to $6.95, as well as from its share of transaction fees each time the card is swiped.”
Why the $2.95 to $6.95 purchase charge?

American Express gift cards can be used anywhere that accepts American Express, which allows the consumer the freedom to buy anything almost anywhere. The fee is based on the convenience of the card. American Express started offering gift cards back in 2004 which has turned into a $1 billion dollar business a year.

Click here for more information on American Express Gift Cards.

Credit Card Fees While Traveling Abroad

Credit Card FeesOne of the biggest problems while traveling abroad, is how will you pay for things? Carrying cash might be a better option if you are trying to escape the high fees charged for using your credit card overseas, but it’s not as safe as carrying plastic.

Many banks will charge a different fee for transactions in different countries. While carrying cash you tend to get better exchange rates, but if you cannot find a forex exchange you are out of luck. Having a credit card in another country such as Europe would be much more convenient than having cash, as you can use your credit card at any time.

Overview of Fees

When you use your Visa or MasterCard overseas they will charge you 1% for the conversion fee and most US banks will add their own 2% fee on top of that to make your total fees 3%. When using a debit (ATM) card for cash outside of the USA, most banks will add some kind of withdrawal fee up to $5 and a conversion fee of up to 3%.

Cash exchanges are not always better as the forex you exchange your money over to will charge you fees and other charges. Sometimes you can lose from 5% to 10% depending on the country you visit.

It’s still recommended to use “credit cards” for your big purchases; use debit cards for cash and just forget about using traveler’s checks and exchanging currency. Not only do you save money by using credit cards, but your money will be safer than carrying around a large sum of money.

Credit Card Charges in Foreign Currency

When using your credit card outside of the USA, the charge will be in the currency of the country you are visiting. When that charge goes through the banking system and reaches your bank they will put their own surcharges onto the already 1% charge by the International network. The bank will add another 2% fee just because they can, just because you needed money outside of your country of residence.

There are still some good banks that do not add surcharges or at least keep the fees low. Here are current charges for some of the large credit card issuers, in order from lowest to highest in fees.

  • Capital One: 0 percent
  • USAA: 1 percent
  • Barclaycard/Juniper: 2 to 3 percent
  • American Express: 2.7 percent
  • Bank of America: 3 percent
  • Citibank/Diners: 3 percent
  • Diners Club: 3 percent
  • HSBC: 3% (most)
  • JP Morgan Chase: 3% (most)
  • US Bank: 3 percent
  • Wells Fargo: 3 percent

So far no other credit card issuer is as good as Capital One in regards to international credit card fees. USAA comes a close second with charging 1%, while HSBC and Chase offer reduced charges to the small number of ‘elite’ customers, but overall they still end up charging 3%.

Credit card charges, U.S. dollars

Sometimes a foreign merchant will charge you in U.S. dollars rather than in their local currency. Banks overall are inconsistent in how they come up with their charges: Bank of America, Barclaycard/Juniper, Citibank/Diners and USAA are usually the credit cards that charge the same fee regardless of the currency, but American Express, JP Morgan Chase and Wells Fargo do not surcharge dollar billings.

Dollar billings can seem like a good idea, but you must be aware of a possible scam. The merchant can use a very lousy exchange rate with they convert your bills into US dollars, so you could end up paying both the merchant’s private currency markup in addition to a surcharge. Avoid any billing in dollars and just stick to credit cards while traveling.

Debit (ATM) cards for cash

It used to be that you could withdraw money from an ATM and pay a flat fee for each withdrawal regardless of how much money you take out. However, some large banks have been adding their own conversion surcharge to any foreign ATM withdrawal. Here are the current costs per transaction and exchange surcharges for withdrawing cash from a foreign ATM:

  • Bank of America (a): $0/0 percent
  • Bank of America: $5/1 percent
  • Citibank (b): $0/1 percent
  • Citibank $1.50/1 percent
  • JP Morgan Chase: $3/3 percent
  • US Bank $2/1 percent
  • USAA: $0/1 percent
  • Wells Fargo: $5/0 percent

(a) At ATMs operated by members of Global ATM Alliance
(b) At ATMs in overseas CITI branches

This shows ways to avoid losing more than 1% on foreign ATM withdrawals:

  • If you have (or open) an account with Bank of America, you can withdraw foreign currencies from ATMs owned by member banks of the “Global ATM Alliance” with no transaction or conversion fee: Westpac in Australia and New Zealand, Scotia Bank in Canada, China Construction Bank in China, Paribas in France, Deutsche Bank in Germany, Santander Serfin in Mexico, and Barclays Bank in the UK. All seven banks have branches throughout their home countries (as well as a few foreign locations); you can locate them through the BofA website. In other countries, however, BofA charges more than most other banks.
  • If you have (or open) an account with Citi you can withdraw foreign currencies from ATMs at Citi branches outside the US with no transaction fee. Citi has branches in dozens of foreign countries: In some, it has retail branches throughout the country; in others, it has only one or two offices in one or two major cities. You can easily find out whether a Citi account will work for your trip by checking the worldwide branch locator on the Citi website.
  • Many small banks or the larger banks with ‘elite’ customer account add no extra fees of their own and even agree to pay back fees that other banks may apply, of course with limits to the number of withdrawals per month.

The spread between some of the best and the worst deals on debit card withdrawals is wider than the spread among credit cards. The best deal such as Citi and the Global ATM Alliance, are as good as the best credit cards, but the worst deals you can end up losing more than when you exchange cash or use travelers checks.

Always use a debit card for local currency from an ATM and not a credit card. If you use a credit card to get cash you will be hooked on paying more fees along with cash advanced fees and higher interest rates.

Debit cards for purchases

Many debit cards are Visa and MasterCard branded, so you can use them worldwide for shopping or to take cash out of an ATM. When using your ATM card most banks will still charge the same as they do on their credit cards for purchases. HSBC, however adds just 1% on charges rather than the usual 3% that most other banks charge.

Buyers’ guide

The overall recommendations for saving money on credit card and debit card fees while traveling and to minimize your exchange losses:

  • Put large charges on credit cards. If you travel outside the U.S. a lot, consider getting a Capital One card, with its zero surcharge (and a reasonably generous reward program). Otherwise, USAA and many smaller banks and credit unions charge only 1%. Even cards with a full 3% surcharge are still an efficient way to pay outside the U.S.
  • Use your debit (ATM) card for whatever local currency you need. When you take cash out of an ATM, withdraw large amounts each time to limit the fees you are charged.

And overall, use plastic (credit cards and debit cards), but be sure it’s the right plastic, otherwise you will pay for it in extra fees.