There are two very specific ways banks are raking in the dough — your dough — thanks to slight changes or details in their policies. In the past, if you were to write a check or use your ATM/debit card to withdraw an amount higher than your balance, the check would bounce or the debit would be denied. Now most banks allow the transaction to go through, but charge you an overdraft fee.
In addition, if your overdraft “protection” is linked to a line of credit, like the Electric Orange Checking Account offered by ING Direct, you can be charged interest on the amount overdrawn.
My primary bank, Wachovia, employs this procedure, and chances are your bank does as well. When more than one debit takes place on a day, the debits are applied from highest to smallest amount. So if you have a balance of $100 on January 1, and on January 2, the bank applies debits of $75, $50, and $25, the first debit won’t cause a problem. The second debit will bring January 2’s balance to -$25, triggering an overdraft fee. The third debit will bring January 2’s final balance to $-50, triggering a second overdraft fee.
Only after all debits have been processed will the bank process any credits to your account. You could get charged an overdraft fee even if a deposited check clears on the same day the bank processes your debits.
That may not be the end. The overdraft fees may each trigger more overdraft fees, since your balance is still below zero. If you’re a good customer, theres a good chance you can get at least the meta-fees credited back to your account.
The best solution is not complaining after the fact, it’s prevention. Know your balance and don’t write checks for money you don’t have in the bank (minus any other outstanding checks).
More info is at Banks Make More on Overdrafts [USA Today]
Updated February 6, 2012 and originally published July 12, 2007.