Business

<< Previous   of   Next >>   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Sunday, June 22, 2008 Bounced check coverage can be a waste of cash Question: My bank offers overdraft protection. Should I use it? Answer: If you are known to bounce a check from time to time, you need a system in place to keep you from paying hefty fees. But be aware of what protection you're signing up for -- "bounce coverage" for many people can be a waste of money. What is overdraft protection? It's an agreement that if you make a payment that exceeds your bank balance, your bank will pay the merchant automatically. Essentially, it's a very temporary loan from your bank, so you can stay in good standing with the seller, and avoid a returned-check fee from the merchant. A bounced check with no protection usually results in a $20 to $30 fee from the bank, as well as a $20 to $30 fee from the merchant. With the typical overdraft protection plan, this penalty is cut in half -- you only have to pay the bank's $20-$30 fee as long as you put money back into the account quickly. Still, that's $20 to $30 that you have to pay for the error -- no small potatoes if you overdraw your account a few times a year, or if you are swiping your debit card for an entire weekend without knowing that your account is overdrawn. (Each overdraft prompts a separate fee.) The best option for most people -- and one that most banks offer, according to the online service Bankrate.com -- is to link a savings account to your checking account. The cost of a transfer is about $5 to $10, much less than the usual overdraft fee. If you don't have a savings account at your bank, start one for this reason, McBride recommends. Another choice is to link your checking account to your credit card. This way, you get a cash advance for a nominal fee that goes into your checking account to prevent you from overdrawing. This plan is only good for people who pay off their credit card balances regularly; the interest rate on the cash advance can spike over a fairly short period of time. Associated Press

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