Back when I didn’t know anything about money (10 years ago) I regularly paid overdraft charges. It was completely idiotic on my part and I’ve reformed my ways.
However when reading other personal finance blogs I noticed that many bloggers regularly face these overdraft fees at their bank due to various reasons (automatic payments when there wasn’t enough money or just poor money management skills).
One way I avoid overdraft charges is by opening up a line of credit (LOC) and linking it to my checking account. I have two checking accounts that I use, one with a local credit union and an online checking account (ING). I am keeping my credit union account open because sometimes I need to hand over voided checks for a variety of reasons and my online checking account doesn’t deal with paper checkbooks. I have LOCs linked up with both my checking accounts.
In the event that I do overdraw my account, the difference comes from my LOC automatically and if its a small amount, it will be less than the fees the bank might charge for overdrawing the account.
I often transfer money back and forth. For example sometimes I get paper checks and instead of spending the postage to mail the check to ING’s office in god-knows-where, I deposit it with my credit union and then transfer the money to ING online.
The LOC also can serve as an emergency fund. Some people think that the interest rates nowadays are pitiful and they’d rather put their money in a place that could do more than make a small bit of interest at the local bank. The added benefit of using an LOC as an emergency fund is that one is more likely to use it in the event of a real emergency since tapping it will result in interest being charged on the sum borrowed.
I wonder if I should submit this post to a financial carnival…
