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Q: I haven’t gotten back to my bank about whether or not I’ll opt in on bank overdraft protection. I’m leaning against it, because I’ve been hit with some overdraft fees on busy banking days. How do banks figure out what withdrawals go through and which withdrawals get penalized? — T. Flaherty, Seattle

A: The “deadline” for letting your bank know if you’ll opt in or out of bank overdraft protection was Aug. 15 — but no worries. You can still let your bank know whether you want overdraft protection and they’ll have to honor your request.

Regarding the debit “priority” question, banks really seem to have quite a racket going.

Most big banks line up your bank withdrawals on a given day not by the order you take money out of your checking account, but by the size of your withdrawal (from largest to smallest).

Take the following hypothetical withdrawals you might make on a given day:

  • 8 a.m. — Coffee and a donut, $5.50
  • 10 a.m. — Dry cleaning, $45
  • 1 p.m. — Lunch, $12.50
  • 2 p.m. — Your electric bill payment is deducted, $200
  • 3 p.m. — Mortgage payment deducted, $1,600

Now here’s how most big banks itemize them:

    Mortgage payment — $1,600

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    Electric bill — $200

    Dry cleaning — $45

    Lunch — $12.50

    Coffee and donut — $5.50

    In other words, the banks prioritize your withdrawals not by the clock, but by the size of the withdrawal. That’s intentional, because it increases the likelihood that you’ll enter into overdraft territory.

    If you have, say, $1,800 in your checking account that day, but possess no overdraft protection, the bank will honor your mortgage payment and your utility payment but not your dry cleaning, coffee and lunch withdrawals. Those three “overdraft” transactions net your bank a hefty transaction fee. And at $35 a pop, that means $105 coming from your bank account, even if you had the money to cover them.

    Your best bet is to always know how much cash you have in your checking account, and to check on a daily basis. A good way to keep track is to sign up for online access to your account on your computer and your cell phone.

    Recognizing that banks tip the scale on withdrawals is half the battle. If the above scenario causes you agita, go ahead and decline the overdraft protection. You might see a transaction or two declined, but at least you won’t waste $35.

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