I noticed a couple of weeks ago on my online statement that Wachovia had charged me $950 in overdraff fees for under $200 in overdrafts from my checking account from the beginning of this month; leaving my checking account depleted in $1,128. My paycheck that I have directly deposited into my checking account back on 6/15 covered this; however, leaving me with a plus sum of only $22.00. During May, Wachovia had charged me $250 in overdraft fees for $50-75 in overdrafts.

This experience has really ruined and devastated me; both financially and personally. As a result, I am now unable to pay any of my bills -I am doing my best to stave off all of my creditors. I wrote an e-mail to Wachovia back on 6/15 demanding that they replace or credit the overdraft fees or I would go take my business to another bank. To this date, I have not heard from them; and to top this off, they have also shut down the use of my CheckCard – leading me this weekend to some embarrasing situations when I tried to use the card and it came back “declined”. I have decided once and for all to end all business with Wachovia and open an account at a competing bank. Still, as I have said, Wachovia has ruined my life.

There’s a difference too between overdraft fees and a line of credit that is drawn down when you go below $0.00. I use this every once in a while when there is a difference of a day or two between bills and paychecks. I’ve never paid more than 50-60 cents for a few hundred bucks borrowed for a few days and paid right back.

Here’s what I did to hack the process:
- Every paycheck, I pay all the bills that are due before the next paycheck, immediately.
- When the bills are debited, I withdraw enough cash to last me for meals, gas, haircuts, whatever your little expenditures are that keep adding up, until the next paycheck plus a few days grace period

This works well, since it’s $35 whether it’s a $400 overdraft or a $4 one. It minimizes the chance of paying 3-4 of those fees (really increasing the chance it’ll happen again the second time). Plus, it’s a fairly cheap interest rate (10% or so), compared to other short-term loans for those of us with bad credit.

Ideally we get to a point where that trick becomes irrelevant because we have a nice cushion. But for the hard times, it worked like a charm, especially if you combine some thriftiness in the process.

Even better, make a budget and instead of paying by debit everywhere, withdraw the exact cash amount you need for “out and about” expenses like these. It helps keep you on par with your budget, knowing that when the cash gets low it’s all you have left. And when you’re under-budget it makes you feel better for saving money.

I think a big part of the problem is electronic funds. It makes it too easy to spend.

I’m working on a post that summarizes all the different fees banks charge and how to avoid them.

Ramit, keep up the good work.

This is certainly an idealistic and impractical solution. Banks would never implement this because it attacks a revenue source and certainly not because there is a service called overdraft protection that any customer can apply for and pay an annual charge of $25 per year. You will pay interest on your overdrafts ~18% but you won’t get charged per overdraft and this will save you tons of money in the long term if you frequently overdraft.

The problem is people do not read and think before setting up their accounts and why is the bank’s responsibility to educate the consumer? Especially if the formal education system is failing in this regard? Anyways I digress… the incentives are just not there to justify…not to mention what would be the reward? Your reward does not reflect the practicality of today’s society…