What Happens if You Overdraw Your Bank Account

If you withdraw more than you have in the bank, you may be charged one or more fees. For example, a bank checking account that has been overdrawn via a bounced check may incur an insufficient funds fee that can be quite high. If multiple checks are written and they all bounce it can result in very high fees very fast. Several factors affect what happens if you withdraw more than you have in the bank, and these factors include type(s) of account(s), bank policy, overdraft program(s), and the amount and type of overdraft. In some cases, overdraft fees can be reduced or eliminated all together.

Overdraft protection:

If a bank account has overdraft protection, the overdrawn account will not cause a check to bounce and an insufficient funds fee will not be charged. However, overdraft protection can still lead to additional fees such as balance transfer fees and overdraft fees as well as any interest that may be charged on the overdraft credit. Sometimes these fees may be as high as the insufficient funds fee. In other words, some banks may define overdraft protection as payment of checks for which funds do not exist but still charge an insufficient funds fee.

Credit card overdraft:

In the case of credit cards that become overdrawn, overdraft, finance fees and interest can be incurred. For example, if one's credit card balance is near or at the maximum credit limit, and a charge is incurred that places the account balance over the credit limit, extra fees may be charged including interest, overdraft fees, and finance charges. Fees like this can increase the real cost of debt beyond a practical and affordable level, However, a bank can be contacted to eliminate overdraft credit on credit cards to avoid the associated fees. If the credit card doesn't allow that, avoiding overdraft or not using the credit card may be a viable option.

Account overdraft fees:

Depending on the type of account, and overdraft programs or arrangements made with the bank, the fees for overdraft may vary. For example a checking account with overdraft protection may incur a line of credit interest charge and an overdraft protection using a balance transfer may incur a balance transfer fee. The fees and overdraft mechanisms that influence overdraft include insufficient fund fee(s), finance charge(s), interest fee(s), balance transfer fee(s), and line of credit fee(s).

Overdraft tips and techniques:

As mentioned above, different options exist when it comes to account overdrafts. Some fees cost more than others, and some overdraft services are more helpful to the account holder than others. In some cases, overdraft alternatives may be more cost effective, while in other cases, the overdraft options may be worthwhile. Essentially, paying attention to what costs more and lowers your bank account balance the most is important if you withdraw more than you have in the bank. Below are a few methods that may help in reducing and/or avoiding the cost of overdrawing from bank accounts.

• Multiple account closings: Wait until the last interest payment is received from savings' accounts before closing a checking account, then close the checking account before monthly fees become due.

• Credit cards: Ask your bank if you can remove overdraft protection and fees from your credit card

• Compare fees: When an overdraft is inevitable, find the cheapest source of financing ex. If the overdraft fee is higher than the fee and interest on a fast cash loan, or a credit card, consider going with the lowest.

• Overdraft options: A tiered system can add fee protection. For example, set up a transfer balance option and a line of credit. If no balance exists for the transfer, the line of credit takes effect. Both options avoid insufficient funds and/or bounced check fees which can be a more expensive option.

• Budget: Making a budget and keeping track of money can help balance funds and assist in avoiding the need for overdraft.

• Timing: Knowing when funds become available and when withdrawals take place can be important in avoiding overdraft. This may involve paying bills over a monthly spread rather than all at once so that sufficient funds are available when they are paid.

Dos and Don'ts of Managing a Brokerage Account

Managing a brokerage account is a substantial financial, business and fiduciary responsibility in the case of non-self directed accounts and an important monetary task when self-directed. The brokerage account, your financial strategy, account services and account management regulations determine what should and shouldn't be done to 1) protect against liability, 2) maintain a proper client and broker relationship, and 3) appropriately manage assets. The 'do's' and 'don'ts' mentioned below provide a broad guideline that may assist with the management of a brokerage account.

Suggested Brokerage Account Do's:

• Be aware of risks
• Pro-actively review assets and their management
• Understand the advantages and disadvantages of services
• Know what is required of you and what you are responsible for

Suggested Brokerage Account Don'ts:

• Invest what you can't afford to invest
• Presume you know everything about an investment
• Renege on a margin call or obligations
• Mismanage funds through negligence

1. Do know what you are responsible for

The brokerage account itself is indicative of what managing that account involves in terms of products, services, benefits, regulations and risks Your product, the company you work for, and applicable regulation(s) will decree the terms of how the account ought to be managed; becoming very familiar with all three of these directives is imperative to your successfully managing one or more of the following brokerage accounts:

• Broker managed brokerage account

• Self-Directed Brokerage account

• Corporate brokerage account

• 401K or IRA brokerage account

• Offshore brokerage account

2. Do be aware of brokerage account risks:

Being aware of brokerage account risks is not only a good way to ensure your quality as a broker, but also to substantiate your actions as a broker. You, your client and your company will all have specific risk management guidelines or allowances that should be clearly understood.

You as the brokerage account manager are the conduit for decision making, rule comprehension and implementation, client and company goal balancing. Some of the risks self directed, multiple brokerage account managers, and investment firm account managers should consider are listed below. As with applicable regulations for specific types of brokerage accounts, risks to may be more or less relevant depending on what asset(s) are being managed.

• Force of sale risk

• Duration risk

• Currency risk

• Regulatory risk

• Management risk

• Product and market risk

• Margin risk

3. Do understand the advantages and disadvantages of services:

Not all brokerage accounts are created equal both in terms of how much they're worth and what services they offer. Know what you want out of a brokerage account and there's probably a brokerage account that can come close to meeting your expectations within reason. For example, if you want to hold stocks, options, bonds and have a money market account all with a theft protection guarantee there's probably an account that comes close to it. Each account may have differing commissions, investor tools, research, platforms, products, processing times and broker assistance that could either be beneficial or non-beneficial to you depending on how you manage the brokerage account and what you expect from it.

4. Don't invest what you can't afford to invest

Not being able to afford an investment increases force of sale risk. Properly allocating money specifically for investments so those investments have time to appreciate or lose value. Since investments involve greater risk than insured, fixed rate interest bearing accounts, the risk of losing money is real. Not being able to afford loss or time in the case of long-term investments is inadequate.

5. Don't negligently manage the brokerage account

Negligent management of a brokerage account means taking money management; investments, the investing process, and investment know how for granted. By taking these things for granted, concern and respect for the brokerage account, your clients and license if applicable, and the accounts performance wanes. This increases management risk that could negatively impact one or more of the brokerage account, you, your client(s), and your company.

6. Don't presume you know everything there is to know

Managing a brokerage account comes with a lot of information from several different directions. The investment products, the investments, the services, responsibilities, research, process and so forth all collectively comprise a good deal of data for you to process, comprehend, and effectively implement while managing the brokerage account. Presuming you know all there is to know can be detrimental to your performance as a brokerage account manager, and/or the success of your investments.

How to open a money market account

Money market accounts are a type of savings account that can be opened at financial institutions were you do your day-to-day banking. These types of accounts may also be opened at banks that provide brokerage account services.

Essentially all that is needed to open a money market account is an account at a financial institution and an initial deposit. A separate application with personal information and acknowledgement of account terms of service may also be necessary.

To open a money market account, one can either go to a bank in person or utilize online banking services. Some online banks may offer better rates on their money market accounts due to lower overhead costs of operating online. 

When two or more accounts are grouped with other accounts under the same account number, they are insured together under the same Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insurance.

Before opening a money market account, it can be a good idea to be aware of the requirements and limitations of these accounts. For example, 'Regulation D', a U.S banking law contained within Title 12, Chapter 2 of the U.S. Code only allows a specific amount of withdrawals and transfers out of money market accounts.

Another thing to be aware of is that money market accounts may require varying amounts of minimum deposit. Some money market accounts may have no minimum requirement while others might have minimum deposits as low as $10 or as high as $25,000 depending on the services offered by a particular bank or credit union.

Interest payments on money market accounts are typically higher than savings accounts, and interest may be calculated more frequently. Higher deposit money market accounts offer better interest rates. However, in comparison to Certificates of Deposits and some Treasury Bonds, the interest on money market accounts is still relatively low.

These types of accounts, as most, are not protected from tax levies or court orders. However, if the money market account is held within a retirement plan it may be subject to certain tax restrictions such as deferred income tax. Also, depending on how the money market account is managed, interest may avoid income tax altogether.

The money earned through money market accounts is tied to economic cycle and other interest rates such as the London Interbank Offered Rate (LIBOR), the Prime rate or the Fed Funds Rate which is the cost of money for banks borrowing from the Federal Reserve.  Money market accounts are considered reliable and safe places to put money.

Sources:

1. http://bit.ly/bd9p0d (NCUA)
2. http://bit.ly/diND3q (FDIC)
3. http://bit.ly/awWPeT (Regulation D)
4. http://bit.ly/bPiRKi (Office of Thrift Supervision)
5. http://bit.ly/cWdFy0 (Kravitz)

What are hybrid savings accounts?

Hybrid savings accounts are banking instruments that allow clientele to combine banking services and benefits into one account. All U.S. Savings accounts are subject to the Federal Reserve's Regulation D which outlines the rules and requirements by which banks must operate savings accounts.

To illustrate hybrid savings accounts further, to qualify as a savings account, one requirement is that  no more than six transfers or withdrawals may be made by internet banking transactions. In so far as savings accounts conform to banking regulations, several types of hybrid savings accounts exist that have differing banking features, services and choices. The following is a review of some types of hybrid savings accounts.

• Frost momentum account

The Frost Momentum account is a hybrid account offered by Frost National Bank. This account has a variable interest rate linked to debit card spending i.e. the more a debit card is used, the higher savings interest can go. The account also offers charting and budgeting tools to help meet spending goals while simultaneously building savings.

• Negotiable order of withdrawal  (NOW) accounts

Negotiable order of withdrawal or NOW accounts are a type of savings account that also allow checks or drafts to written against them. However, according to Regulation D, NOW accounts are not exclusive to savings accounts but also pertain to pension funds and escrow accounts.

• Money market accounts

According to Money Economics, money market accounts are hybrid savings accounts because they too combine savings account regulatory compliance with higher yielding accounts that also allow checks to be written against them. In order to qualify for higher interests rates however, money market accounts may also require a high minimum balance. Many varieties and types of money market accounts exist on the market.

• Hybrid Savings/CD

Another type of hybrid savings account combines Certificate of Deposit savings with checking privileges. The First Mariner Bank offers one such product that links allows checking withdrawals via transfers from another account at the bank. In essence this account allows one to earn a high rate of savings while also writing checks against the higher yield so long as a minimum balance is maintained. According to the First Mariner Bank, this hybrid savings/CD account is also insured by the Federal Deposit Insurance Corporation (FDIC)

• Hybrid yield savings

Some savings accounts offer balance linked interest rate yields that offer a higher rate of return on balances up to a certain amount and then a lower rate on balances above that. The Boeing Employees Credit Union (BECU) in Washington State offers one such account. The hybrid BECU member advantage savings account currently offers a yield of 6.17 percent for the first $500 and a .5 percent yield for amounts above that.

Sources: 

1. http://bit.ly/9EjN92 (GPO Access: Regulation D)
2. http://bit.ly/bbpWUq (Frost Momentum)
3. http://bit.ly/d5TTNx (1st Mariner Bank)
4. http://bit.ly/adAxxN (Moneyeconomics.com)
5. http://bit.ly/cElIo4 (Boeing Employees Credit Union)

Disadvantages of Having a Joint Checking Account

Disadvantages of having a joint checking account revolve around 1) legal and regulatory management of the account, 2) account usage complications, 3) the type of checking account contract, and 4) the type of checking account.

Understanding the potential disadvantages of joint checking accounts involves foresight into how and why the account is necessary and whether or not the regulation, contract and use of such is favorable to all account holders. Several potential factors regarding joint checking accounts may present a disadvantage for joint checking account holders.

• Funds may still be subject to garnishment

The legal disadvantages of having a joint checking account pertains to the treatment of money within the account under specific circumstances such as death, withdrawal, transfer of funds, closing of account etc. Each checking account is subject to State and Federal regulations, and contractual terms between the owners and the financial institution at which the account is held. Depending on the circumstances, rules governing the use of the joint checking account may be disadvantageous. For example, different States have different classification of ownership which can affect whether or not funds within a joint checking account can be garnished.



• Wrong type of account contract

Disadvantages of having a joint checking account may also relate to the type of account contract. These contract may be either joint tenancy, tenancy in common or tenancy in common with rights of survivorship. This distinction determines how many joint account holders exist and what authority those account holders have in relation to the account(s) and the funds within it. If a checking account is designated tenancy in common only can affect whether or not money within a checking account automatically become the property of the second owner. In such case, joint tenancy can be a disadvantage if the other account holder passes away and the account does not have rights of survivorship.

• Differences in authorizations afforded to account holders

Being fully aware of account holder authorizations is helpful in preventing potential disadvantage related to such. Account holder status can affect access to information and the ability to make decisions regarding the account. In cases where a joint checking account consists of both a primary and secondary account holder, further disadvantage may arise for the secondary account holder. This is because secondary account holders are not necessarily granted the same usage rights of the account even though the funds may be jointly owned.

• Weak agreement between account holders

Usage disadvantages of having a joint checking accounts varies between account holders, the importance of the money in the account, how the account is managed and how effective the agreement between account holders, if any, is. In other words, although joint checking accounts are not necessarily disadvantageous, the potential disadvantages of the account increase if an agreement regarding the accounts management does not exist between the owners.

• Misuse of privileges within the account

In addition to the categories of joint accounts described above are the different account designations and how they are made use of i.e. type of account rather than type of contract. To illustrate further, suppose a married couple holds a joint checking account as joint tenants with rights of survivorship but later get separated. In such case the agreement between the account holders may change and not be as anticipated. This may cause misuse and/or unanticipated or agreed upon use of the account without further agreement between the account holders. In other words, situations can change in which case the account holders are vulnerable to abuse of agreement.

Joint checking accounts aren't always a bad idea, but do have the potential to be disadvantageous. This is because when two or more people are involved with a checking account, the number of requirements, restrictions, actions and abuses can increase. In light of this, taking into account the disadvantages of having a joint checking account can be beneficial in determining if this type of account is useful, and in being cognizant and preventing possible disadvantages associated with the account.

More specifically, disadvantages of having a joint checking account can pertain to account holder rights and authorizations, rules and regulations regarding the account and funds within it and the contractual terms and designation of the account, financial institution and account holders.