Kitty heard the facts of life about using your ATM card to get YOUR money out of an ATM owned by Not-Your-Bank, and found them rude. She didn't like the game in which they make you pay money to get your money. Thus, she opted for an account that allowed her to escape those fees by letting her parent be a co-owner of the account.
Having wisely chosen to get a joint checking account with a parent, even though craves the feeling to total independence that an account of her very own - all her own, no sharesies - would have given her, Kitty was learning about using it.
She learned why you really do want to keep your check register, and record each and every transaction, including the ATM withdrawals, and the debit card swipes at the coffee shop.
Then we got to the horrors of what happens when you either didn't keep track (and thus don't know) or you ignore the information in the balance column of your check register. We explained the facts of life about overdrafts: if you write a check, but don't have that much money in the bank when the check gets to the bank, bad things happen:
1. The check "bounces". That means that the person to whom the check was written doesn't get the money, they get the check back.
2. The person who got the check back now thinks you'e a low-life scum and doesn't trust you anymore. In some shops, this means you can never write a check there again. (If this was your favorite pizza delivery shop and you live in the dorms, this hurts).
3. The person to whom you wrote that check will not only demand to be paid the full amount of the check (totally fair), but will also demand that you pay them an additional amount (likely in the range of $30.00). Why? because -- their bank will be charging THEM $30.00, and it's not fair that they have to pay for your mistake.
4. Oh wait, YOUR bank will also charge you $30.00.
So, let's look at the math:
You've been lazy. You've not kept up with your check register, and you rely on the online banking balance that says you have $35.79 in your account. You forgot that you wrote a check for $23.47 at the bookstore last week, and since it hasn't cleared yet, it doesn't show up on the online balance. You also forgot that you used your debit card to buy coffee yesterday afternoon, and splurged on a biscotti to go with it, spending $5.79. You actually have $6.53.
If you tried to use your debit card to buy something, you'd be in luck! The debit card would balk, not having enough money, and you'd be embarrassed, but would not over-draw your account.
If you tried to use your debit card to get cash at the ATM, you'd be in luck. The debit/ATM card would not let you get cash, because you don't have any money. You would not over draw your account.
BUT, if you wrote a check for $7.87 for the highlighters that you've realized you need for your class, you'd be in trouble.
1. The check would bounce, because you don't have that much money in the account. So... it goes back to the stationery shop you love so much, which is the only local source for those charcoal pencils you love so much. They would put a sign up saying NO CHECKS from YOU!
2. The stationery shop would charge you $30.00 for bouncing the check (you now owe them $37.87)
3. Your bank charges you $30.00 for bouncing the check -- (those highlighters now cost you $67.87).
Holy Inflation Batman!
Kitty found this rude as well. She began to see very clearly why you want to keep that register up to date. She's signed onto the plan that includes the rule: Don't bounce checks.
But it gets worse! (how? you sputter).
Kitty learned this truly ugly fact about overdrafts:
The bank doesn't merrily sort the checks that come in by amount. That means that if you start wtih $358.97 in your account, and on one day six checks totalling $562.21 come in, they won't put the smaller checks in first! They run 'em as they get 'em, in whatever order they show up.
So... while it could go like this: It could just as easily go like this:
- 2.48 - 414.54
356.49 - 55.57
- 12.85 - 30.00
343.64 - 85.57
- 38.59 - 103.89
305.05 - 189.46
- 53.69 - 30.00
251.36 - 219.46
- 103.89 - 53.69
147.47 - 273.15
- 414.54 - 30.00
- 267.07 - 303.15
- 30.00 - 38.59
- 297.07 - 343.74
If you're like me, you noticed a $150.00 difference there.
And that's just what happens in your own account -- there's another $150.00 in fees likley to be levied from the folks to whom the checks were written.
Kitty thought that was rude too. Again -- avoid overdraft like the plague.