Update: Bank of America settled a lawsuit for $410 million concerning this issue below.
In his documentary film Overdrawn!, Karney Hatch mentions that banks often post your deposits and withdrawals to your bank account in such a way that they maximize the possibility of overdrafts. Even if you believe you have a large enough balance to cover your withdrawals thanks to recent deposits, the banks have a way of calculating debits and credits that can result in multiple overdrafts in one day.
Here is how this works, supposedly. This is the scenario: you know that you have an automatic electronic withdrawal that will be executed today, perhaps to pay your mortgage or cable bill. You realize that you may not have the money in your account so you run to the bank and make a cash deposit to cover the withdrawal. Or perhaps you are aware of the impending withdrawal the day before, so you execute a transfer from one account to another online. In your scenario, the final withdrawal and deposit are executed on the same day.
According to experience with many banks, no matter what time your withdrawals and deposits are processed on any one day, the bank will apply your withdrawals first, from largest to smallest, then apply your deposits. So if you have $100 in your account at the beginning of the day, and you have instructions to pay your mortgage of $1,500, your cable bill of $75, a cash withdrawal at an ATM during the day for $80, a debit card purchase at the grocery store for $10, and a scheduled ACH transfer for $2,000, the bank will process your mortgage first, dropping your account below zero and incurring your first overdraft fee.
The bank will then reduce your balance by the amount of the cash withdrawal. Even though you’re already below zero the bank will charge you a second overdraft fee. Next, the bank will process your cable bill, resulting in the third overdraft fee. Your debit card purchase will be posted next, incurring an average fee of $30 for your $10 purchase. You’ve now been charged $120 in overdraft fees alone.
Finally, the bank will apply your deposit, bringing your account balance positive again.
This technique has been observed, and banks have even admitted to this practice. Yesterday, Consumerism Commentary reader Steve claimed that this is not the policy at Wachovia, nor is it the policy at most banks. So I called Wachovia, Wells Fargo, Citibank, Commerce Bank (TD Bank) and Chase to try to extract the official policies from the customer service representative or salesperson.
Here’s what I found, as of October 2008.
Wells Fargo
Wells Fargo’s policy is to always post ATM withdrawals first, regardless of the time the transaction took place. After ATM withdrawals are posted, deposits and other credits are posted from highest to lowest amount, and finally checks and other debits are posted from highest to lowest. Interestingly, if your starting balance is $0 and you walk into the bank at 9:00 am to make a cash deposit of $100 and at 2:00 pm withdraw $40 from the ATM, according to this policy you could incur an overdraft fee.
Citibank
I don’t have complete faith in the answer I received from Citibank. The representative I talked to did not understand my questions at first and put me on hold for a long time, presumably to find someone who might know the answer, but returned with an answer that still did not match my questions. Eventually, she told me that cash deposits and ATM withdrawals are posted at the time of the deposit, but ACH and check deposits are posted first. Check payments are posted after all other deposits. It sounds like you’re in the clear with Citibank.
Chase
Chase will post your transactions to your account at the end of the day. The bank starts with deposits and ends with withdrawals, both from largest amount to smallest. This policy would avoid overdraft fees as long as at the end of the day you’ve deposited enough to cover your withdrawals.
Commerce Bank (TD Bank)
Like Chase, Commerce Bank (now TD Bank) will post your deposits before your withdrawals. The policy is slightly different. Rather than processing your checks paid from largest amount to smallest, they are posted in the order of the check number, low to high. Commerce Bank assumes you want check number 1001 to pay before check number 1002.
The customer service representative at Commerce brought up an interesting point. First, keep in mind that there is a holding period when you deposit a check. The funds you deposit may not be available on the same day, even if the amount of the check is included in the balance listed online. Additionally, cash deposits have “next day availability,” so even cash deposits won’t be posted to your account until the next business day. Furthermore, on Friday, they consider it to be Monday, The one-business-day rule then stipulates that cash deposits on Friday won’t be available in your account for use until Tuesday!
Wachovia
Like Steve mentioned, the customer service representative at Wachovia explained the policy quite clearly. Wachovia will post your credits first, from highest to lowest amount, and will then post your debits, also from highest to lowest.
According to each bank’s representatives, the respective policies have been in existence as long as they could remember. I would like to contact more banks, like Bank of America, Bank of New York, Capital One, and PNC Bank to determine their policy as well. If I do, I will update this article.
It’s interesting that each bank has its own method of posting items to customers’ accounts. I think this is a practice that should be standardized across financial institutions, and it should be done in such a way that it benefits the banking customer: all overnight credits (ACH deposits, Direct Deposits, checks coming off hold, late ATM deposits) first followed all overnight debits (ACH withdrawals, electronic checks) from lowest to highest amount at the start of the day, then all real-time credits (cash deposits, ATM deposits during business hours) followed by all real-time debits (ATM withdrawals, bank teller withdrawals, debit card purchases) from lowest to highest amount at the end of the day.
Having never worked in a bank, I’m not sure if this policy is feasible, but it would be fair to the customer and reasonable to the bank.
Updated December 21, 2011 and originally published October 28, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.
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Banks make money by keeping you confused. The fees are getting more creative, like charging for paper statements, using a teller for an “online” checking account, ect ect…
THE BEST NEW SCREWJOB IS THIS: Charging you to use YOUR MONEY in your LINKED SAVINGS to AVOID the “overdraft fees” …. so wait a minute, whats the interest rate on auto withdrawing 5 bucks out of MY SAVINGS CASH… to cover a $4.98 purchase… and then charging me a $5.00 for the privlage of using my own money to cover the fee… if I was standing at the bank and withdrew, and then deposited the money their would be no fee, so they argue it is “convienance” fee… In actuality, they are LENDING YOU YOUR OWN MONEY for 1 day amd charging 100% simple interest for the “right to access” your own damn money…. Bank of America, Wells … avoid….
Honestly, platforms like Serve(American Express) and paypal are the last great hope. All the bank regulation will ensure FEES WILL CREATIVELY STAY AHEAD of Legislative Law, and keep your poor “stupid” self confused. You are “stupid” because you cannot read, and comprehensively apply and adopt a 50 page legal disclosure written in a mix of latin, english, and accepted legal jargon that by it’s very nature uses a DIFFERENT DICTIONARY than an english dictionary, so the good corporate lawyers, can easily intentionally appear to be saying one thing to a “stupid commener”, but really are legally saying something quite different. That is why they make <800k a year. They can legally lie through word manipulation, and have a firm legal basis only another lawyer would be able to infer.
Three rules to live by:
1) never keep all you money in one place
2) the world makes money by taking your money
3) money is paper, and is only worth what someone is willing to give you for it… the FED can put all of the non elite in the poor house by flipping a switch (and have by adding a 1.2 trillion dollar printing session to avoid American default on money the Government bowwrowed using tax dollars not collected as leverage).
ING bank – awesome – they don't even do overdrafts, it is a "lending fee" that comes out to under a dollar per transaction… Cap One just bought them out so KEEP YOUR ACCOUNT AGREEMENT! – RESPOND WITH A CERTFIED REFUSAL LETTER when they try to change the terms.
Ally – 8 dollar overdraft fee, only 1 per day
Schwab – will pull from a linked brokerage cash balance for free
other than that, I would look for an honest local credit union.
I work at a bank. Cash deposits should always be made in a branch with a teller. They are available immediatley. If your bank holds cash deposits made in person at a branch, find a new bank. Never spends more than you have in your account and you will never become overdrawn. Opt OUT of your banks standard overdraft practices. This will save you lots of time and money. Also, maybe make one large withdrawl and spend cash for small purchases so they will NEVER overdraft your account due to posting order…
US BANK. Handed the teller cash. Wasn’t counted until the morning after a charge came through. $30. Considered buckling, and depositing cash to cover an upcoming charge. Problem? They’
ll just do it again. And again. And the tellers admit it! There is no apology. There is no refund. There’s not even any shame. US BANK Class actions anyone?
I went to the drive up window at US Bank to cash a government check drawn on their bank and branch. They said I’d have to come inside. I told her I was without my portable oxygen unit and I didn’t have the strength to come in. She told me it would be a $5.00 fee for a $61.00 check. Then she got a manager. She said that if I came in, they would be happy to put the $5.00 in a new account for me. Isn’t that blackmail? Either sign up with us or lose the money? I asked her where the money went. She ignored me, it probably goes to their retirement plans. Must have gotten the idea from the government.
If, I paid overdraft fees to Bank of America
You should have recieved a notice to be part of the class for the BOA thing. I got mine in the mail last week. Unfortunatley the customers who were taken advantage of will get a few bucks (likely less than the cost of one OD fee) and the lawyers representing the class will reap many many millions of dollars.
Thank you, thank you. I’ve been trying to find “Standard Banking Practices” regarding deposits and withdrawals. Apparently there are no standards. I’ve been doing battle with Alture Credit Union over just this matter. If you deposit cash at an ATM ” DO NOT” use your ATM card until they decide to empty the terminal. When they find out you really did deposit cash, well it’s just to bad for the client because you just racked up about $ 300.00 in overdraft fees.
Thanks so very much for the info.
Myra
I have an account with Compass (a relative of Wachovia), which I have had for many years. They post debits first, then credits. I was just charged 2 $38 fees on the same day when this happened. I asked for an explanation or remedy. They did not respond. I asked again a few weeks later, again – no response.
I just cancelled the direct deposit and auto student loan payment from that account. I’m firing Compass. I noticed that Capital One is offering totally free checking – no minimums – that pays 1% interest.
I’ve been screwed by ING several times. I’ve checked my account online and the money I’m waiting for has been deposited. So, I go to the ATM and make a withdrawal. When I come back, miraculously, the deposit that was there when I checked has suddenly disappeared, only to reappear a few minutes AFTER I made the withdrawal, thus allowing ING to charge me an overdraft fee. It’s only a few cents, but it pisses me off. They’re making millions of dollars a year by doing this with other customers.
I used to love ING but now rarely use them as they’ve become just as scammy as most other banks.
A few cents? while I understand that the deposit disappearing just long enough to charge you is annoying, that sounds way better than what I’ve experienced with WF! I will have to look into this..
Banks are all over the place in regards to how and when funds are debited and credited. I have deposited many Chase written checks to my Chase account. Obviously Chase immediately knows if the check is good and can make all funds available immediately. Sometimes they do and sometimes they dont’!
A few times Chase did the switch-a-roo and did not make funds available till the next day. I asked a Chase manager and he said “he’s heard about that, and sometimes it’s kind of hit and miss”.
With the new legistlation with credit card companies, the banks will continue to find creative ways to screw the customer. Of course one can alway have plenty of money in the bank and never have this problem. My issue is that they have rules that their own branch managers cannot clearly define. I showed receipts to the branch manager and all he could say was “hmmmm. that’s weird”.
The banks have ran many models to see which scenario will generate the most revenue. They change accordingly. Yes, it’s business, but it’s also very deceptive.
Example: I have $1000 in the bank.
9:00am I buy breakfast $10
12:00PM, I buy lunch $20
6:00PM, I buy dinner $30
8:00PM, I buy a new TV $995
*My account by the time I buy the TV should be overdrawn. I will get a $30 overdraft fee.
However, many banks will debit the TV first even though it was the last transaction, then my breakfast, lunch, and dinner so each will overdraft for total of $90.
this JUST happened to me…I have a compass account and noticed an overdraft fee..however my statement never reflected I was overdrawn. Was told by the customer service agent that it was their policy to debit first then credit…so, the can line their pockets with $38 per overdraft. There should be some standardization to bank policy. I’m still shocked…
It should be noted that CASH transactions are to be processed immediately on the same business day the transaction is done and be part of your available balance as per Federal Depository Regulations (Regulation CC…)
The following types of deposits must be made available on the first business day following the banking day of deposit (“next-day availability”):
1. Cash deposited in person to one of your employees.
2. Electronic payments received by your institution for deposit in an account — An electronic payment is considered received (deposited) when your institution has received both payment in collected funds and information on the account and the amount to be credited. (Under other rules, funds for most electronic deposits are made available on the day of deposit.)
3. U.S. Treasury checks deposited in an account held by a payee of the check — Unlike deposit types listed in 4 through 8 below, which pertain to deposits made in person, Treasury checks deposited at an ATM owned by your institution (a “proprietary” ATM) must be accorded next-day availability.
4. U.S. Postal Service money orders deposited in person to one of your employees and into an account held by a payee of the check.
5. Federal Reserve Bank and Federal Home Loan Bank checks deposited in person to one of your employees and into an account held by a payee of the check.
6. State or local government checks deposited in person to one of your employees and into an account held by a payee of the check, if your institution is in the same state as the payor of the check. (Note: If the customer desires next-day availability of funds from these checks, you may require use of a special deposit slip.)
7. Cashier’s, certified, or teller’s checks deposited in person to one of your employees and into an account held by a payee of the check. (Note: If the customer desires next-day availability of funds from these checks, you may require use of a special deposit slip.)
8. Checks drawn on an account held by your institution (“on-us checks”) deposited in person to one of your employees or at on-premises ATMs or night depositories, if the branch or branches involved are in the same state or check-processing region.
9. Deposits that include some checks of types not listed above — The first $100 (or the total amount of the deposit if it is less than $100) of non-“next-day” checks must be made available the next day.
Exceptions: When deposits of types 1, 4, 5, 6, and 7 are not made in person (for example, when they are made at one of your ATMs), the funds must be made available by the second business day. Deposits, cash or check, made at an ATM that you do not own (a “nonproprietary” ATM) must be made available by the fifth business day.
They’ve modified this a bit and if the ATM can ascertain that it’s a cash transaction (Those nifty new envelopeless and formless ATMs…), it’s supposed to be processed the moment they receive the money in the ATM as if it were a teller transaction because the system knows it just got processable cash. Wells Fargo’s ATMs all do this now (and are treated this way)- and there’s other banks working towards this. Any of the above mentioned deposits are supposed to be treated basically as a cash transaction and are to be made available for use the following day if not sooner and they’re supposed to be “processed” first. PERIOD. If you get zapped by “processing” operations like this article discusses- you should be able to read them the riot act from Regulation CC and get them to undo it all. The main reason they do this sort of crap is because while it’s illegal, most people don’t know their rights and won’t call the banks on the carpet over it.
I’m pretty sure Chase’s answer is completely false. It seems that they post checks/withdraws from highest to lowest before processing deposits, ACH or otherwise.
While banking at Wells Fargo, inside a safeway store without a drive up window, I nearly went crazy. When I opened the account, they said that to get overrdraft protection, I’d have to open a savings account, with which I could call them anytime to have the funds transfered to checking. Well, I called one day to have them transfer the $ and they said they could no longer do that by phone. I would have to either come in or do it on my computer. I am disabled and on O2 24/7. There is always a long line without seating. So I went online and thought I had done the transfer. The next things that happened was my rent check was returned. I called the bank and they said they could tell I tried to make a transfer but it didn’t go through. How could they tell I tried if it didn’t go through? On my online statement it showed that they had paid the rent check first, and the next day returned it, in order to pay 2 amall checks, charging me $35.00 for each and charged me $5.00 to transfer my money and then another $35.00 for the returned check. The exact amount I ended up overdrawn, was the exact amount of all the charges added up. I don’t bank there now and refuse to pay the fees. I filed a disability complaint that Wells Fargo was made to send me by the Feds. Hip Hip Hooray!
I just finished an interesting conversation with BBVA Compass regarding a $38 nsf fee charged on an nonreturned check that was presented to them on Monday, Oct.3. An elctronic deposit for retirement funds from the state of Texas, payable the 1st(Saturday) was received and posted on the 3rd, resulting in a positive bank balance at the time the check was processed. The check that cleared was dated and mailed on Saturday(1st), obviously received on Oct. 3, and presented the 3rd. The explanation,of this transaction being nsf was that by dating the check on the first, I was KITING funds since the wire had not been deposited and even though the check was not presented for payment. The explanation was that the bank always relies on the check date to see if funds were sufficient at the time it was written. The moral of the story is (1) do not write and hold unditributed checks and (2) find a more honest bank.
I also have been a victim of BOA’s policy to manipulate the order by which checks are processed. When I spoke to them I stated that I had been a cusotmer for over 30 years (show a little mercy, and beginning with Barnett Bank in 1978) The response? “Well if I have been a bank customer for over 30 years I should have known better” So I am happy that they will answer for their arrogance. Also, I have a young friend who worked for Wachovia, she had a postion that allowed her to grow in the company and had to attend classes. She told me that “This is how banks make their money by manipulating the order by which checks are processed.” She learned that this is their practice. It’s disqusting! Bank officials get their astonomical bonuses and it’s at the expense of the working class who live from paycheck to paycheck.
I would not trust any commercial bank. Remember, investment banks are the only banks that work your money–Commercial banks only work you.
Ended up with TD Bank by default after my community bank failed. My pension is due and payable on the last day of the month and was always credited that way with the community bank. Not with TD. It does not post until the first. They are literally sitting on billions of free dollars for a day. It’s criminal and by the time the end of the month rolls around, I’m flat broke!
After making a deposit of a large cashier check into my bank of america checking account, I waited 4 days to see that it was clear. On the forth day I saw that it was showing that it was clear in my statement online…so thinking it showed up a cleared I spent some of the money…by the end of the day they had taken the amount back out of the account saying the check was no good…well why did they lead me to believe it was good and cleared. I’ll tell you why, so they could get the overdraft of $35 on every withdrawal….I am a low income person…struggling to put food on my table and pay my bills. Now this…I am over draft $950 with no way to recover…what do i do now?
I deposited a check with Cadence Bank. I asked them after 7 days if it had gone through because I didn’t trust my ex’s check. They said That it had not been returned I could expect it would not come back. I had 13 overdraft fees( $507.00) when that came back 2 days later. How does a bank hold a check 9 days before returning it. Banks don’t use U.S. mail to transfer from bank to bank. That was ridiculous.
I had a whole page of things BOA has done in the past and now my computer is acting up and erased the whole thing. Therefore, I will cut to the punch line and hope my computer allows it. It is my firm belief that we should all revert to burying our money in a Mason jar under the mattress or in a coffee can – if we don’t have a back yard. Face it~we are not making any money off our bank accounts. The banks are making a small fortune on one branch alone. It might even be a good idea to go back to the barter system so we don’t have to worry about checks, etc. Since that is not likely to happen, maybe our bosses should have the bank accounts and take out cash to pay their employees. Then, for those who need to mail off a payment (and who doesn’t?) we can go to the local grocery store’s customer service or the local 7-11 and BUY A MONEY ORDER WITH THE CASH WE HAVE ON HAND. The banks can then do what we do every day of our lives and wonder where the money went! And OMG! how am I going to survive? If they aren’t all too busy scrambling to find another job, maybe it will hit their pea-brain that KARMA just made a delicious withdrawal/deposit for us all. Maybe they will be at the next food bank we go to. Ah-h-h the possibilities are endless.
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