A $30 Cup of Coffee

Lots of ideas, and too little time to write them down. It's been a really hectic week--I'm just so tired. I don't even want to think about what more work I have to do later, and the production deadlines I have to meet (for my editorial position at school). My pace of posting will slow down a bit these next couple of weeks, but rest assure that fresh content will be available on a regular basis.

How many of you have overdrawn from your checking account? I admit to having done it twice. Once I was slapped with a $10 fee, and the next time (a couple of years later) was quite a bit more (though I can't remember how much). Being a cheapskate, I felt the sting from those fees. This was before online banking existed. Now that I can check my account balances regularly, it hasn't happened again, though it came awfully close when I was in Vegas last month. I knew exactly how much money I had in my account at the time, so I knew I would barely skate by. "Barely" was $2.26. I blame it on post-exam mental confusion, but nevertheless, lesson learned again.

A lot of people rely on their debit card these days, since they could be used as a check or a credit card. That piece of plastic has rendered the checkbook moot in brick-and-mortar stores; no longer do we have to take the time to write out a check in order to pay with checking account funds. There's no denying that it's easy in other ways--if you're out of money, you can use cash back at the supermarket instead of trekking to the nearest ATM; if you're online, you can punch in your debit card number and pay for stuff.

But there is a price to pay for this ease of use. First, debit cards offer much less protection for fraudulent charges than credit cards do. After all, the money comes straight out of your bank account, so if a thief decides to drain it, there's very little you can do about it. Second, it's even easier to incur overdraft charges than before. I didn't learn about this until a news story popped up on my TV screen yesterday, but apparently your debit card won't be denied for the lack of funds. Instead, the charge authorization will go through, and you'll be slapped with an overdraft charge. The example used by the reporter was this: suppose you buy a $3 cup of coffee at Starbucks and you overdraw. The overdraft fee for a particular bank is $27. Ergo, your cup of coffee comes out to $30. That's not even the scary part--what's really scary is that the fees can be multiplied by several folds if you charge it again later, since there's nothing to tip you off to the problem. Before you know it, fees might reach 3-digit figures.

It doesn't matter if you overdraw by $1 or $10--the high fee is the same. So, before you whip out the plastic, ask yourself how much money is in your checking account. Otherwise, you'll literally throw money away.

[Ed.--A couple of readers said overdraft protection is the way to go. I totally agree! It's a great way to avoid those ridiculous fees. Still, it's important to keep track of your account balances, since you don't want to drain your other account now, would you?]