Do You Know What Your Bank is Charging For?

by John Kiernan on April 4, 2012

When you were in school, did you ever have one of those dreams where you slept through an exam or woke up one day to find that you’d been registered for a class all semester, yet had done none of the work and were bound to fail? Well, the personal finance equivalent recently befell me, only it wasn’t a dream.

I discovered that for 18 months my bank had been charging me interest for a checking account overdraft I was unaware of, and as a result, I had already paid more than $150 in interest. Now, it’s important to note that I am not writing this because I have an axe to grind (the charges were eventually waived), but rather to enlighten others who may fall victim to the same sneaky practices.

You see, overdraft protection works kind of like a credit card in that it provides a line of credit to use whenever you need it and then assesses interest until funds used are paid back. If you write a check that cannot be covered by the funds in your bank account, the overdraft protection kicks in to prevent it from bouncing. The only problem is you might not notice that this has taken place.

At this point, you might be thinking: Well, how could you be paying interest for 18 months without noticing? The answer is a combination of hasty transaction review on my end and vague labeling on the bank’s part.

With ACH, people can set up automatic monthly payments from their bank accounts for any number of things, most of which would not be the least amount suspicious, especially when they are typically listed quite clearly (bank names have been changed for security reasons):

  • OTHER DECREASE
    DOMINION VAPOWER ELEC BILL
  • OTHER DECREASE
    Chase EPayment ACH PMT
  • OTHER DECREASE
    Wells Fargo MTG PAY

So you can understand why I simply assumed the following transaction to represent an ACH payment to a small vendor that my bank didn’t have detailed information on:

  • OTHER DECREASE
    PRE-AUTHORIZED TRANSFER TO CHECK

Well, as you and I both now know well, “Other Decrease / Pre-Authorized Transfer to Check” does not denote a magazine subscription, a credit card payment, or anything like that. Instead, it refers to the monthly payment I’d been making toward an overdraft balance I never knew I’d incurred that was accruing interest at a whopping 18% interest rate.

The fault ultimately lies with both me and the bank because while these charges were essentially hidden, I didn’t inquire about them quickly enough. However, the same could happen to anyone, so make sure to read your monthly statements carefully and inquire about anything that strikes you as odd or unclear. Having to make a quick phone call is certainly preferable to being out money, after all.

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