Anybody fully understand overdraft policies ?

[Delawaredave5]

Caller on Marketplace money podcast said:
1. He calls bank and turns off "overdraft protection"
2. Weeks later he accidentally overdrafts account 3x in one day
3. Bank hits him with three $35 fees

He calls bank - bank says he turned off the overdraft "service" - but bank would still pay merchant charges even though there was no money in account (and charge him when they do so).

Is this true ?

Any way to have a debit card simply refuse a transaction if there no money in account ?

Banks suck.

 

[W2R]

That's the way I always understood it to work.

I haven't bounced a check since I was a teenager, though. My secret? I keep a little extra in checking. The interest I lose is trivial.

 

[LOL!]

Yes, bank will charge if you overdraw your account.

Overdraft service is when you overdraw your account and the bank charges you $10 to get the money instead from a backup credit card or savings account. That way you save the difference between that $10 and the $35 overdraft charge.

Some (not all) banks will not allow you to overcharge on a debit card, but you have to set that up separately from the overdraft service.

Some credit card companies in the past were the same way. For example, years ago I called CapitalOne and made sure they would deny credit if the card was overcharged rather than extend credit and charge an overlimit fee. I think the new credit card law also set this up as well.

 

[LOL!]

FRONTLINE: the card game: watch the full program | PBS
is the Nov 2009 Frontline report which discusses all this. I made my teenagers watch this video. Chapter 5 is about debit cards. Note that debit cards are not affected by the new credit card bill.

 

[Delawaredave5]

Some (not all) banks will not allow you to overcharge on a debit card, but you have to set that up separately from the overdraft service.

I want the Debit card to not work if there are not enough funds in account to cover an attempted transaction.

My bank says this is technically not possible - which is baloney. They also won't issue an ATM card only - it has to work Debit also.

These are cards for my kids. PLEASE: no "parenting advice" or obvious comments like "you should always know your balance". They have low balances and jobs - they deposit small checks that aren't immediately available.

 

[LOL!]

My teenager reports that her debit card will not work if she tries to exceed her balance. She has a WellsFargo account. I have not seen her try to overdraw her account, but I do see her bank statements every month since her account is joint with my spouse and wrapped into our single statement of all accounts. I do get e-mails when she tries to transfer from savings to checking and there is not enough money to cover it. It is simply denied and the bank sends an e-mail warning.
[Correction to above: My kid says today that they would allow a debit card to work past the amount of money in her account. Sorry about that.]

In 2 years with this WF account, she has never paid a fee.

 

[W2R]

I want the Debit card to not work if there are not enough funds in account to cover an attempted transaction.

My bank says this is technically not possible - which is baloney. They also won't issue an ATM card only - it has to work Debit also.

These are cards for my kids. PLEASE: no "parenting advice" or obvious comments like "you should always know your balance". They have low balances and jobs - they deposit small checks that aren't immediately available.

Then ESPECIALLY kids should learn this lesson: When you write a check or purchase something on a debit card, it is a serious promise and your honesty and integrity are on the line. Don't write checks you can't or don't intend to pay, or you will regret it (and the bank will make sure that you do).

 

[Delawaredave5]

Then ESPECIALLY kids should learn this lesson: When you write a check, it is a serious promise and your honesty and integrity are on the line. Don't write checks you can't or don't intend to pay, or you will regret it (and the bank will make sure that you do).

With all due respect, above is "parenting advice"..... Goal of the thread is to technically understand options and solve a problem.

They do not write checks without confirming balances ahead of time.

What has happened is they are "sure" their $20 grass cutting check has cleared and they pay for a $7.50 movie with their debit card - then get whacked with $35 fee.

To avoid this, they go to ATM - where they can confirm their current balance and get cash - this works but they can't always get to ATM

 

[W2R]

With all due respect, above is "parenting advice"..... Goal of the thread is to technically understand options and solve a problem.

They do not write checks without confirming balances ahead of time.

What has happened is they are "sure" their $20 grass cutting check has cleared and they pay for a $7.50 movie with their debit card - then get whacked with $35 fee.

To avoid this, they go to ATM - where they can confirm their current balance and get cash - this works but they can't always get to ATM

Why are they "sure" that their $20 grass cutting check has cleared, if they haven't seen it show up as having cleared? This is the crux of the problem, not the bank's (totally normal) practice of overdraft charges. They need to learn that guessing just isn't good enough when a serious promise is on the line, and if it is just pending you can't spend it.

If you don't intend to teach them how most banks handle this, then I suggest you open an account for them with the "Bank of Mom and Dad". I think you are doing them a serious disservice by trying to find some unusual arrangement at a bank by which they won't ever incur overdraft fees.

These are cards for my kids. PLEASE: no "parenting advice" or obvious comments like "you should always know your balance". They have low balances and jobs - they deposit small checks that aren't immediately available.

Virtually every one of us has started out in life depositing small checks in small accounts and trying to pay our rent and utilities without having checks bounce. To do this, we had to learn how the average bank handles overdraft fees. If they aren't permitted to learn this lesson, why allow them to have a checking account in the first place?

 

[Delawaredave5]

If you don't intend to teach them how most banks handle this, then I suggest you open an account for them with the "Bank of Mom and Dad". I think you are doing them a serious disservice by trying to find some unusual arrangement at a bank by which they won't ever incur overdraft fees.

With all due respect, above is "parenting advice"..... Goal of the thread is to technically understand options and solve a problem.

My teenager reports that her debit card will not work if she tries to exceed her balance. She has a WellsFargo account. I have not seen her try to overdraw her account, but I do see her bank statements every month since her account is joint with my spouse and wrapped into our single statement of all accounts. I do get e-mails when she tries to transfer from savings to checking and there is not enough money to cover it. It is simply denied and the bank sends an e-mail warning.

In 2 years with this WF account, she has never paid a fee.

Thanks for above. This is what we want - a debit card that simply will not work if there are insufficient funds (just like ATM card will not give you cash if there is no money in account).

Unfortunately WF is not in our area. I'll check with other local banks.

The kids try to keep most of their money in savings to generate interest and keep minimal balance in checking. They electronically move money around, etc. They are very responsible with money and spending.

 

[LOL!]

Correction: My kid says they (WF) would let her overdraft her debit card and charge her a fee. She has never done it ... yet.

It doesn't matter if WF is in your area or not. They have all the online banking, etc for free as well as 100 free trades a year in your brokerage account (must have $25K in assets with them, but could be $0 in checking). WF is the best deal going nowadays.

With small amounts of money in savings and elsewhere, there is no reason to move around to try to get another 2 cents in interest. My kid has about $50 in her checking and savings accounts combined. That's up from $28 at the end of last month.

 

[W2R]

With all due respect, above is "parenting advice"..... Goal of the thread is to technically understand options and solve a problem.

Thanks for above. This is what we want - a debit card that simply will not work if there are insufficient funds (just like ATM card will not give you cash if there is no money in account).

Unfortunately WF is not in our area. I'll check with other local banks.

The kids try to keep most of their money in savings to generate interest and keep minimal balance in checking. They electronically move money around, etc. They are very responsible with money and spending.

Wow - - good luck to your children when they finally move out on their own, open a checking account, and have to learn about the real world (including overdraft fees) from which you are protecting them! I hope they don't incur more than 10-20 overdraft fees the first month.

I wonder how you could think they are responsible with their checking accounts at all, if they don't even bother to verify that a check has cleared without spending it.

Correction: My kid says they (WF) would let her overdraft her debit card and charge her a fee. She has never done it ... yet.

It doesn't matter if WF is in your area or not. They have all the online banking, etc for free as well as 100 free trades a year in your brokerage account (must have $25K in assets with them, but could be $0 in checking). WF is the best deal going nowadays.

With small amounts of money in savings and elsewhere, there is no reason to move around to try to get another 2 cents in interest. My kid has about $50 in her checking and savings accounts combined. That's up from $28 at the end of last month.

Exactly!!

 

[landover]

I read sometime back that a bank charged overdraft fees 4-5 times one day. I think it was something like he had $100 in account and there was checks for $90, $20, $20, $20, $20. So they cleared $90 and charged overdraft on each small amount check. It can be other way, clear all $20 and charged overdraft fee only on $90.

 

[Delawaredave5]

Correction: My kid says they (WF) would let her overdraft her debit card and charge her a fee. She has never done it ... yet.

It doesn't matter if WF is in your area or not. They have all the online banking, etc for free as well as 100 free trades a year in your brokerage account (must have $25K in assets with them, but could be $0 in checking). WF is the best deal going nowadays.

Then WF is like my kids bank, PNC. The other option is to have the card enabled as a credit card (so ATM and Debit and Credit). But the kids don't want a "credit card".

Thanks for your help !

 

[Delawaredave5]

Wow - - good luck to your children when they finally move out on their own, open a checking account, and have to learn about the real world (including overdraft fees) from which you are protecting them! I hope they don't incur more than 10-20 overdraft fees the first month.

I wonder how you could think they are responsible with their checking accounts at all, if they don't even bother to verify that a check has cleared without spending it.

With all due respect, above is "parenting advice"..... Goal of the thread is to technically understand options and solve a problem.

 

[W2R]

Then WF is like my kids bank, PNC.

With all due respect, above is "parenting advice"..... Goal of the thread is to technically understand options and solve a problem.

Guess you understand the options... "Bank of Mom and Dad"!!

Maybe you could put $100 in their bank accounts (to prevent overdrafts) and tell them that it is yours, why it is there, and that they can't spend it.

 

[MichaelB]

Goal of the thread is to technically understand options and solve a problem.

The only way to avoid overdraft fees is to always have a balance to cover every charge. This not only avoids fees, it is a healthy financial habit.

Not all banks deal with overdrafts the same way. The only thing all banks have in common is they will charge for their services, through some combination of direct and punitive fees. Those of us that never pay bank fees are actually being subsidized by the large amounts of punitive fees.

Regarding the “parenting advice”, It’s not clear how to deal with this without first covering the basics of how banks work and how one should deal with them, especially the part about always having funds available and checks taking time to clear.

I have found that most national banks will provide an ATM-only card, but it does require some persistence.

When my children were younger we did what W2R suggested - funded a minimum account balance that was, by agreement, not accessible. But we also covered the fundamentals.

 

[ERD50]

Ddave5, just so you don't think you are crazy or are not communicating properly - I hear you and completely understand what you are saying and why you are asking.

Even the most responsible among us can slip up from time to time. The nature of a debit card and the immediate withdrawal increases the likelihood of a slip up. For example, if I slip up and write a check with ISF (though I never have), I may think about it later in the day, go online, and I can transfer funds from my tied MM or savings account instantly, and very likely cover it before it hits. Not so with a debit card, right? Damage does instantaneously.

So, you want a default backup plan for your generally responsible child. I get it. Like you, I would much prefer to have the attempted charge declined, rather than incur fees. Bottom line, I think you just need to ask and find a debit card that allows this mode to be selected. You got me curious, I think I will check out if our CU offers this for the debit cards my kids have.

Thanks for posting this, it is a useful discussion for many of us.

-ERD50

 

[youbet]

I suppose the next level of discussion will be whether it is preferable to have overdrafting (with fee) turned on or off.

Turned on - child occassionally overdraws using debit card and pays a pre-determined fee.

Turned off - child needs to use debit card for train fare home and is pennies short in her account. Card is rejected, child is stranded, parent sues because young, innocent daughter spends hours in an urban train station waiting for dad to pick her up. Or whatever.......

Regarding OP's original question - From a technical (not parenting) point of view, I think a debit card is the wrong tool to be using in the situations you describe. You're asking if there is a special version of an ocean liner designed for paddling in small, fast moving streams.

 

[RunningBum]

I don't understand why overdraft protection isn't an option. If they are responsible and just occasionally have a timing problem, they can pay the overdraft loan as soon as the check actually clears. I wouldn't like my daughter to be driving home from college and not be able to buy gas because a check hadn't cleared, and not have enough gas to get home.

 

[RunningBum]

sorry, somehow didn't see youbet's post that made the same point.

 

[donheff]

Ddave5, just so you don't think you are crazy or are not communicating properly - I hear you and completely understand what you are saying and why you are asking.

Even the most responsible among us can slip up from time to time. The nature of a debit card and the immediate withdrawal increases the likelihood of a slip up. For example, if I slip up and write a check with ISF (though I never have), I may think about it later in the day, go online, and I can transfer funds from my tied MM or savings account instantly, and very likely cover it before it hits. Not so with a debit card, right? Damage does instantaneously.

So, you want a default backup plan for your generally responsible child. I get it. Like you, I would much prefer to have the attempted charge declined, rather than incur fees. Bottom line, I think you just need to ask and find a debit card that allows this mode to be selected. You got me curious, I think I will check out if our CU offers this for the debit cards my kids have.

Thanks for posting this, it is a useful discussion for many of us.

-ERD50

+10! Sure kids should learn how to protect themselves. But most kids screw up now and then and the banks are acting like predators lying in wait for them. They make a fortune from newbies (kids) and from people living paycheck to paycheck. The card companies and banks are exploiting the weakest among us for profit. Then they turn around and try to guilt people for "writing" a check they can't cover - hypocrites. DDave - If you can find a bank that will do it your way dump the jerks you are with now.

 

[ERD50]

youbet & runningbum - yes, I thought about that issue (being declined just when you really need the money) as I was typing. Seems like the best of both worlds would be overdraft protection with a warning on the terminal. Then the user could say - ooops, I guess I don't need to pay an added $35 for this pack of gum, but maybe I'm OK with the $35 to catch the last train out.

Wrong tool? OK, so maybe a credit card is a better choice for kids. We can explain that model to our kids and monitor it online (if we feel the need - not going into the 'parenting' topic - personal decision/circumstance) and they can get money up to the credit limit (IIRC some cards decline you at the credit limit, some will charge a fee), which may or may not be more than what they have in their account in an emergency. So if it is the end of the billing cycle, they have a $1500 limit, and have charged $1450 at that point, that $60 train ticket might get declined, right?

My credit limits are so high ( 4-5x my typical monthly bill) I can't imagine hitting them w/o some serious pre-thought, but I know my out-of-the-nest son has a pretty low limit. I'll mention it to him to ask for an increase, and check into what happens if the limit is hit.

-ERD50

 

[LOL!]

Suppose debit card overdraws account and child gets slapped with a $35 fee. Is that not a learning experience? More learning is to get them to call up and request that the fee be removed. That's part of life as well. Make sure they read "How to Win Friends and Influence People" before the phone call.

 

[youbet]

Wrong tool? OK, so maybe a credit card is a better choice for kids.

Actually I was thinking the correct tool in the example stated would be CASH. A $20 check earned by cutting grass doesn't clear in time for junior (or whoever) to use his/her debit card to pay for a $7 movie and generates a $35 overdraft fee? Why launder those levels and types of income/outgo through a debit card? Don't have $7 in your pocket? Don't bother going to the movie. The chance of being charged a $35 overdraw fee or of having the card unexpectedly rejected is reduced to zero.