Question about banks

Question

ok i go to a bank where they allow me to overdraft up to 750 the other bank i went to i could over draft up to 500 over draft a lot at the first bank but i never ever not paid the money back or the over draft fees . where they stopped me from over drafting saying it looked bad , but i thought this is where they get most of there money from since a lot of people dont keep money in the bank . i close that account without owing them anything . is this common of most banks , do not not want you overdraft even if you pays the fees including with overdraft

Answer 1

They're offering you a convenience.  In the good old days, banks didn't offer overdraft protection.  If a check came in for processing and your account didn't have enough money, the check was IMMEDIATELY stamped "Insufficient Funds" and returned to the sending bank.  The person who wrote the check had to pay the fee for the returned check and they also had to deal with the embarrassment of apologizing to the person who tried to cash the bad check.

The overdraft service that your bank offers you is nothing more than a line of credit so that if you bounce a check, they pay it and you pay the fee.  The person you gave the bad check to never had to know you didn't have enough money in the bank.

Now, here's where your thinking is going a little off track.  Yes, banks make money by charging you the overdraft fees, and they probably charge interest on the amount of the overdraft if you don't have it paid back within 30 days.  But that isn't the issue.  The issue with overdraft protection is that you wrote a check and did not have the money to cover the check.  Your bank reports this to the credit bureaus as a bounced check.  Your landlord may never know that you couldn't cover the rent last month, but when you apply for a new credit card or a car loan in 6 months, that rent check is right there - bounced check, covered by overdraft line of credit.

And the overdraft is a line of credit.  The more open credit you have available to you, the more your credit score is affected.  If you CAN bounce $750 in checks with one bank and $500 at another, credit grantors are going to assume that you WILL.  When you apply for credit, any potential lender looks at the amount of credit you have available to you and then they determine whether your income would let you pay off the credit if you maxed out every card and every overdraft that you have.  That's how having 2 bank accounts can actually hurt you.

Bottom line:  overdraft protection is just another form of open available credit and it counts against you if all your current credit and all your potential credit can't be paid off with your current income.  Checks that bounce might be paid by your bank, but it's still a bounced check and hurts your credit.