Prior to being badly injured at work, I added overdraft protection to my bank account. The reason why was because my former employer had a bad habit of messing up on payroll. Many employees would see on their pay stub that various hours were missing and thus not being paid for them. With the overdraft protection I would know that the mortgage and other bills would still be paid while the employer would correct these mistakes.
For many people, they have a tendency to always be in overdraft and find it equally difficult to get out of overdraft. The reason being is that there are various bank charges associated with being in overdraft.
For the purposes of this blog, I deliberately put myself into overdraft for over a month. This meant that all bill payments, mortgage payments, etc. were in overdraft. The bank that I deal with charges a $5.00 “pay per use” fee every time the overdraft is used. I used my overdraft 12 times that month resulting in $60.00 in fees. Then there was an overdraft fee of $5.00 plus interest charges on the overdraft amount of $22.75. Being in overdraft for one month cost me $87.75!!!
Then there was a day where a deposit was registered late in my account in time for my mortgage payment to come out on the same day. This resulted in a NSF charge of $45.00 and my mortgage payment came out the following week.
I don’t know about you, but I can think of much better uses for this money as opposed to giving it to the bank every month. It’s also worth noting that many banks will only allow a person to be in overdraft for a certain length of time such as 3 months or so. If a person goes over that time period the bank can demand that the remaining overdraft balance be paid in full by a certain date.
For these reasons, I would strongly encourage again that people have an Emergency Fund as opposed to relying on bank overdrafts.
Until next time, stay safe, healthy and strong.
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