Q: I currently maintain checking and savings accounts in a national bank. Because of my business, I ran almost $7,000 through the account last month.
I have tried to pay my bills online (an ongoing project through the past year), but there is a 5-day lag between depositing a check and having it clear the account.
I usually do a pretty good job managing it but this month I have paid almost $300 in bounced check fees through mistiming and because the payroll company did not deposit my paycheck on the usual day. That’s on top of the $9.95 I’ve been paying for overdraft protection.
I am ready to make a change, perhaps to online banking, but need some impartial advice. Are there any good options here? I’m worried that I’m going to drag down my credit history and credit score, which could limit my options in the future.
A: I don’t know that a particular bank is the problem. The real problem is that cash isn’t getting into your account fast enough or you have timed to make your payments from your bank before your account can actually pay the amounts owed. Does your employer and/or your clients offer to pay by ACH? That’s also known as direct deposit, so the funds are deposited like cash directly into your account.
You should also figure out a way to better manage your cash flow. If you can’t count on checks clearing on a certain day, then you should have a backup plan where you charge more funds on a credit card than writing checks.
Even if you pay a month of interest on your credit card because your checks are late, it’ll likely be less than $300. I’d look into moving some of your regular expenses onto credit cards to give you more control over cash flow.
Overall, I think banking online is an excellent idea. You should pay your credit card bills electronically (you can pay the same day your credit card bill is due, which should buy you some extra time), and you should pay your other regular monthly payments (like your mortgage, car, and school loans) electronically as well. Some companies will give you discounts for setting up an automatic debit each month.
You should have access to all of your bank accounts online. If your checking and savings accounts are tied together properly, you will be able to transfer cash from one account to another, and avoid being overdrawn at any time.
There are lots of ways to manage your cash flow better. I think you should start by understanding what your bank’s fee structure is and what services they provide for each fee. Some banks charge for a overdraft protection — that is the bank will pay your check even if you don’t have funds in the account. In essence, they extend a loan to you for the amount they pay and you have to repay that loan back to the bank.
What does your overdraft protection do for you at $9.95 per month? Does your bank have better options? It would be worthwhile for you to sit down with a banker at your bank to discuss your issues and determine if there are better alternatives for you. Above all, you should make sure that you don’t pay a bill until your online account indicates that the funds are available to you.