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Veteran business correspondent Karen Gibbs answers your personal money questions and addresses current topics that affect YOUR finances on a daily basis. Karen is the financial expert in your corner--no question is too basic or too small. Karen boils down the issues simply: here's what you need to know, and here's what you need to do. Send your money questions to and post your comments below.



The Truth about Overdrafts

Karen Gibbs

Hi Karen, are overdrafts counted against your credit score?

- Marsha, Stevenson, MD

Coins and PensMarsha, overdrafts, spending more money than you have available in your checking account, are not reported to the three credit reporting agencies.  However, they can be very expensive.  The average bank fee for an overdraft is $35 and banks have been known to continue to charge for each overdraft even when they are aware of lack of funds in the account.

The surest way to avoid overdraft fees is to closely monitor your account and make sure you have enough money to cover transactions.  Balance your checkbook after each transaction and you’ll always know, down to the penny, exactly how much money you have available.

Many financial institutions offer overdraft protection, for a fee.  This is where you link your checking account to another bank account such as savings, line of credit or credit card.  

Federal laws, however, limit you to six transfers per month from your savings account.  After that the banks may charge you to transfer your own money to your own accounts, so you want to keep your transfers (and overdrafts) to a minimum.

You can also sign up for automatic alerts letting you know when you’re running a low account balance.  There are also free apps to help you manage your money and keep track of your balance.

Another way to avoid overdrafts is to NOT “opt in” to debit card transaction coverage.  Instead, when you use your debit card for a transaction and there are not enough funds to cover the transaction, it will be declined, not incurring any cost to you other than the opportunity cost of not having whatever you wanted to buy.

Overdraft fees are just one of many fees banks use to make money.  The Consumer Financial Protection Bureau (CFPB) is looking into financial institutions and their overdraft practices, especially reordering of transactions to generate the most fees, but have not (as of this writing) issued any guidelines or rulings.

Banks are in the business to make money and overdraft fees are just one of the many fees they charge.  Don’t give the banks any more money than you have to. Do your best to avoid overdrafts and the fees you will be charged.

Good luck!

- Karen

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