Personal banking is one of those things we do that we would prefer to just run itself, as if on auto-pilot. We feel we should not have to be always looking over our shoulder to see whether our bank is playing it straight with us or whether we need to constantly keep watch in order to keep them honest.
Unfortunately, banking life is not that simple. Reason: banks are always trying to find ways to squeeze more profits out of their customers.
If you take the perspective of a bank, you cannot blame them. After all, banks have the right to make money according to the rules of a capitalistic system. And, banks have an incentive to make money, given all of the competition they face. So, why shouldn't they try?
How Banks Make Their Money
Essentially, banks make money in three ways: from investments, loan interest, and fees. Banks invest the money deposited by their personal banking and business banking customers into ventures that they believe will turn a profit. They also extend loans to businesses and individuals - charging an interest rate for doing so. And, then there are the bank fees.
Bank fees are no small part of banks' income. In fact, banks in the U.S. alone make well over $30 billion in fees annually. There are a number of types of bank fees, including checking account fees, service fees and overdraft fees.
The Role of Auto Drafts Scams %26 Overdraft Fees
Given their profitable nature, overdraft fees are a particularly lucrative way for banks to make their money. Basically, an overdraft fee is charged every time a customer tries to write a check, make an online payment, or make debit or credit charge against an account that has an insufficient balance to cover the charge.
One situation whereby overdrafts can occur is when an auto draft has been set up, taking money out of a bank customer's checking account each month for the purposes of paying a certain merchant or other service provider. Some bank customers suspect their bank is intentionally manipulating the exact date of the auto draft based upon account balance. The goal would be to increase the chances of an overdraft - resulting in more fees for the bank.
While it is difficult to prove this is going on, it is entirely possible, and there is precedent for this type of deceptive behavior on the part of banks. For example, some banks have admitted to practicing what is termed 'transaction stacking,' which means processing pending transactions for a given checking account in the order of highest-to-lowest charge. The goal, again, is to increase the chances of more overdraft fees being incurred.
3 Ways to Avoid Auto Draft Scams
Here are 3 ways to avoid auto draft scams:
1. Always keep at least $100 in your account: One way to avoid your bank's manipulation of auto drafts just to earn more bank fees is to always keep a padding of $100 to $200 in your account at all times. (Of course, this solution will not help you if the auto draft amount is higher than this.)
2. Check your account balance at least twice per day: Another solution is to spend more time monitoring your account balance, your already-cashed vs. not-yet-cashed checks, and any pending bills or credit card charges. This takes more of your time than you probably want to spend, but at least it will help you stay on top of things.
3. Switch to a no-overdraft-fee bank: Some banks are now instituting no-overdraft-fee policies. These banks will never charge you an overdraft fee - even if you overdraw your account. Consider switching to one of these banks in order to avoid these overdraft problems altogether.
Auto draft scams are just another way for some unscrupulous banks to earn more money off of you and your account. Take action in one or more of these 3 ways in order avoid these scams.
Get a list of no-overdraft-fee banks in your area at: http://www.Squidoo.com/How-to-Avoid-Abusive-Overdraft-Charges-by-Banks.
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no it means nothing for you. both reduce your available balance immediately.
it has nothing to do with credit score.
debit or credit has to do with how merchant collects money from your account. you never notice difference.
I'd love a promo code (don't have a debit or credit card at all).
oh yeahh cause when I purchase my rock the dealer asks "debit or credit?" -__-
no, debit card using as credit card means you don't enter your pin..but the transaction will be verified, if you are buying something that costs $2.75 and you only have $2.50 in account, the card will be declined...debit cards are not reported to the credit bureaus since they are linked to your bank account..you can choose to use the card as debit or credit, doesn't really matter.