A £38 hamburger!!

Have you ever been frustrated by your bank's overdraft protection turning the cost of a £3 hamburger or a Starbucks coffee into a £38 disaster?

Bank overdraft protection might be the biggest fraud perpetrated yet on unsuspecting customers. Hidden overdraft fees are unfair, and fairness is an essential component of a sound banking system.

Why do overdraft fees seem to generate so much ire? For starters, they are often a surprise.The crux of the problem is this: Many people simply believe that if they ask an ATM for more money than they have in their account, the ATM will simply say NO.That is not true! ATM's once upon a time were good at saying No. But, today, they say "yes" to nearly everyone.The fact of the matter is: Banks have become addicted to overdraft fee income as a way to increase their profitability. Unfortunately, these fees hit the low balance account users the hardest. Clearly, people could do without the additional strain brought on by the bank's approach to maximizing the amount of money they make on overdraft fees.

Think about all the methods that banks use to get fees out of people:

* Banks often process items largest to smallest - increasing the likelihood of multiple overdrafts
* Banks sometimes hold available funds from debit card transactions so other transactions will overdraw your account
* Banks sometimes hold deposited funds for longer (by changing the “cut-off time” for same-day transactions or by increasing the days required for deposits to become available)
* Banks sometimes make it more difficult to make a deposit (for example, by decreasing the number of ATM's that take deposits)

Here are some of the excuses that banks give:

*We assume your largest transaction is most important
*If you don't have the money, don't spend it
*We do this so you won't be turned down when you make a purchase

Making matters worse: Consumers rarely know when they are about to buy a £38 hamburger. It’s nearly always a surprise when the monthly billing statement comes. It doesn’t have to be that way. A simple warning would be nice, something like the "foreign ATM £2 fee" warning we are all so familiar with. Something like this:

ATM: "I'll let you take out that £20 you don't really have, but it will cost you an extra £35. Are you sure you want to do that?"
You (turning to friend): Uh, Bill, can you spot me £20?

However, while we wait for banks to stop scheming to create ever more innovative schemes of usurping your hard earned money, there are a few things that we can do to ensure we are not hit with unnecessary overdraft charges:
1. Check your balances frequently using the internet.
2. Keep a close eye on your monthly statements to catch any unexpected charges.
3. Put away a part of your monthly income towards savings and resist the urge to shop on impulse. Often, if you wait until the next day, you will find that the perceived “urgent need” disappears.
4. If you absolutely need to make an emergency purchase, be sure to check out cheaper options such as:

a. Getting a loan from friends or family.
b. Credit cards, even if you are a revolving user with interest immediately applicable upon purchase can work out cheaper than overdrafts.
c. Even payday loans (“same day loans” as they are popularly known in the UK) can be a cheaper short term option than paying your bank’s overdraft fees. Just be sure to do two things:

1) Borrow the smallest amount that meets your needs and
2) Pay the loan back as quickly as possible (do NOT roll the loan over).