Overdraft Protection

Protecting yourself from Overdraft and Returned (Bounced) Item Fees

How do overdrafts and returned (bounced) items happen?

When you write a check, withdraw money from an ATM, use your debit card to make a purchase, or make an automatic bill payment or other electronic payment (ACH) for more than the amount in your checking account, you overdraw your account.

Laredo Federal Credit Union (LFCU) has the choice to either pay the amount or not. If it pays even though you don’t have the money in your account, you may be charged a non-sufficient funds fee. If LFCU returns your item without paying it, you may be charged an additional non-sufficient funds fee by the company that you wrote the item to- for example, a store, or the utility company.

How can you avoid overdraft and returned (bounced) item fees?

The best way to avoid overdraft and returned (bounced) item fees are to manage your account so you don’t overdraw it.

Keep track of how much money you have in your checking account by keeping your check register up-to-date. Record all checks when you write them and other transactions when you make them such as ATM/debit card/ACH transaction items. And don’t forget to subtract any fees.

Pay special attention to your electronic transactions. Record your ATM withdrawals and fees, debit card purchases, and online payments.

Don’t forget about automatic bill payments you may have set up for utilities, insurance, or loan payments.

Keep an eye on your account balance; remember that some checks and automatic payments may not have cleared yet.

Review your account statements each month. Between statements, you can find out which payments have cleared. Check your balance by calling the 24-hour free Audio Response line (800-310-9402) or through online banking (www.laredofcu.org) or at an ATM. Be sure to find out the actual available amount in your account.

Sometimes mistakes happen. If you do overdraw your account, deposit money into the account as soon as possible to cover the overdraft amount plus any fees from LFCU. Depositing money into your account can help you avoid additional overdrafts and fees.

What is an “overdraft privilege” protection plan?

Many financial institutions such as LFCU offer an overdraft privilege plan so that your checks are not returned and your ATM and debit card transactions go through. With these plans, you’ll still pay an overdraft fee or a returned (bounced) item fee to the financial institution for each item. But you will avoid the merchants’ returned item fee and will stay in good standing with the people you do business with.

How much does an “overdraft privilege” plan cost?

Plans vary, but most financial institutions charge a flat fee (often $25 to $35) for each item they cover. Others set a dollar limit on the total amount your account may be overdrawn at any one time. For example, LFCU might cover overdrafts up to a total of $300, including all fees. In addition, some financial institutions charge a daily fee- say $5 a day- for every day your account is overdrawn.

Example: Suppose you forgot that you had only $15 in your account and wrote a check for $25, used an ATM to get $40 cash, and used your debit card to buy $30 worth of groceries. In these 3 transactions you’ve spent a total of $95 and overdrawn your account by $80 ($95-$15)=$80). How much will your forgetfulness cost you?

If you have an overdraft privilege plan, LFCU may decide to cover all 3 transactions. Each of the 3 overdrafts will trigger a fee. You will owe your credit union the $80 that you spent

even though it wasn’t in your account, plus the 3 overdraft fees. If the overdraft fee is $25 per overdraft, you will owe LFCU $155: $80=$75(3x$25).

What are some other ways to cover overdrafts?

LFCU provides another option of covering overdrafts that may be less expensive. Consider these options:

Good Account Management - Cost $0

Overdraft protection from savings - $5 per transfer fee

Overdraft privilege protection plan - $25 per item fee

What do you need to know about an overdraft privilege protection plan?

Avoid using these plans as short-term loans, they are costly forms of credit.

If you overdraw your account, get money back into your account as soon as possible. Remember that you need to put enough money back into your account to cover both the amount of your overdraft and any fees.

Even if you have one of these plans, there is no guarantee that LFCU will cover your checks, ATM withdrawals, and debit card and other electronic transactions that overdraw your account.

Good account management is the lowest-cost way to protect your hard-earned money. If you need overdraft protection every now and then, ask LFCU about the choices and services that are right for you.

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