Hi dave76,
In North America (Canada too), having a negative balance in your
checking account is not an option. When a bank receives a NSF (Not
Sufficient Funds) check, they will return the check to the customer
and charge a fee (about $20 - $25). To avoid the embarrassment of
"bounced checks", most customers choose some form of Overdraft
Protection, which is sort of an insurance policy against NSF checks.
In this case, the bank will honor the cost of the check. Too many
overdrafts may cause a bank to close an account, and this in turn may
make you a potential credit risk when you try to open an account
elsewhere. Overdraft Protection varies from bank to bank, but most use
some variation of what I have listed below.
Depending on what kind of protection you have signed up for, if you
overdraw your account, the bank will either loan you money or transfer
money from your savings account. Usually, unless you have a special
account or are able to maintain a minimum balance, you'll be charged
fees and/or interest for the service.
ICBA Fee Study 2002: Overdraft Fees:
Large bank: $25.10
Medium bank: $22.22
Small bank: $18.56
Multi-state bank: $23.13
Single-state bank: $20.06
http://www.icba.org/feestudy2002.pdf
The difference between UK and US banks (assuming what you say about
the UK banks is true):
If the UK bank is honoring a NSF check (not returning it), then they
are covering the cost for the customer in return for interest. US
banks have this option also. Rather than transfer funds from your
savings to checking account, a customer can opt to have a bank loan
them the money to cover the amount of the check and charge interest on
the amount. Both countries are basically accomplishing the same thing
- the banks are covering bad checks and charging interest for the
service - semantics makes them sound more different than they are.
Speaking specifically to what you noted, the US bank would cover the
cost of the insufficient funds and make a "separate account" for the
loan they just made rather than make a negative balance in the
checking account.
In the US, there are three types of overdraft protection.
1. Savings & Checking accounts are linked and money is automatically
transferred as needed. There is no interest charged, because it's not
a loan, but there is usually a daily fee (about $10).
2. Lines of credit - you are given a loan, up to your credit limit,
and in addition to interest, there is usually either an annual fee for
the plan, or daily fees (about $5).
3. Checking accounts can be linked to a credit card. There is usually
a fee (a percentage of the transfer or daily fee) for this service.
Consumer Action Survey Finds Benefits & Pitfalls of Overdraft
Protection
© Copyright 2002 Consumer Action
http://www.consumer-action.org/English/PressReleases/1995_05_09_PR.php
It is possible to open No Fee accounts with lots of perks, such as
free Overdraft Protection, but they usually require larger minimum
monthly balances than average accounts.
UK banks also have various options, such as
" If you would like the flexibility of being able to overdraw your
account, our Premier Current Account overdraft facility allows you to
draw cash and write cheques up to an agreed limit. There is no
arrangement fee or monthly fee to pay as long as you stay within your
agreed limit and the interest rates are shown above.
Alliance & Leicester plc. Registered Office: Carlton Park, Narborough,
Leicester LE19 0AL.
http://www.alliance-leicester.co.uk/currentaccounts/index.asp?page=premier-rates&ct=navtertiary
Additional Links:
MSN: Money Central: ChexSystems network:
http://moneycentral.msn.com/articles/banking/basics/9035.asp
What Investment: Bank Accounts & Overdrafts (UK):
http://www.whatinvestment.net/banks/baccounts.htm
Egg goes on High Street overdraft offensive:
http://production.investis.com/egginvestor/newsreleases/news2002/2002-07-15/?version=1
Wells Fargo - Overdraft Protection:
http://www.wellsfargo.com/credit_cards/select_card/hawaiian/overdraft_protection/
Chase - Fees:
http://www.chase.com/cm/cs?pagename=Chase/Href&urlname=bancoen/smallbusiness/businessbanking/checking/balancesandfees
Heritage Bank Online:
http://www.heritagebankna.com/flexgold.cfm
I hope I've answered your questions but if it's all as clear as mud,
please ask for a clarification before rating my answer.
Sincerely,
hummer
Search Strategies:
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Terms Used:
checking
accounts
overdrafts
2002 |
Clarification of Answer by
hummer-ga
on
29 Nov 2002 07:56 PST
Hi Dave,
I'm sorry for any misunderstandings - I focused on "Overdrafts" when I
should've focused on "Negative Balances". I don't believe the UK and
US banks are all that different. "Not Sufficient Funds" IS a negative
balance and US banks are not obligated to make a payment when there
are insufficient funds in an account to cover it, however, as a
discretionary courtesy to their customers they do provide options for
dealing with it if your account is in good standing. For example, if
you continue to make regular deposits, you haven't defaulted on a
loan, and you bring the account to a positive balance within a certain
length of time, most banks will let you have a negative balance up to
a set maximum amount. This service comes at a price and is not meant
as an alternative to credit cards (Visa). In addition to a fee, the
prime lending rate in effect at the time will be applied to the
negative amount, or sometimes a fee of 25% to 30% or more will be
charged. To avoid higher fees and poor credit ratings, Overdraft
Protection is the preferred option (meant for accidental overdrafts
and not as a way of life!).
Castle Bank:
http://www.castlebank.com/p_checking_overdraft_disclosures.htm
In regards to your question "how many people...use overdraft
protection?", do you mean how many people actually overdraft their
accounts or how many accounts have overdraft protection? Both
questions will not lend themselves to definitive answers easily. Most
accounts probably do have overdraft protection because most regular
checking accounts either come with the protection built-in or signing
up for it is a free or reasonably priced option.
Thank you for writing - I hope this helps but please get back in touch
if you need further clarification.
Sincerely,
hummer
Search Strategy:
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Terms Used:
us
checking
accounts
negative
balance
|
