by: Prakash Menon
Many banks actively encourage their clients with low balances to overdraw their accounts. That means, if the customer writes a check or uses her debit card and has insufficient funds in the account, the bank clears the check by granting a temporary overdraft (a short-term loan), up to a specific limit. The customer is saved from the problems of bounced checks or interrupted shopping sprees.
Sounds like a good deal for the customers, right? That’s what the banks say. They claim overdrafts are an added convenience to customers.
The truth is, they’re often a very bad deal for the customers. Here’s why.
When a bank grants a regular line of credit, the interest charged may be up to say, 20% or so. However, for overdrafts, banks don’t charge interest — they charge a flat fee on each transaction. A fee that does not depend on the value of the transaction.
Read full article at Money matters101.com [here]
