Is Your Bank a Threat to Your Balance?

Is Your Bank a Threat to Your Balance?

Forget identity thieves and data breaches, at least for a moment. A more insidious threat to your account balance could be your own bank.

In an update of their annual “Checks and Balances” study—an analysis of key checking account terms and conditions—Pew Charitable Trusts found that customers are still paying big bucks for banks’ harmful overdraft policies.

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One top-offending practice identified in the study was "high-to-low transaction reordering." Rather than listing account debits and credits in reverse-chronological order, 50% of banks order transaction amounts from highest to lowest, therefore increasing the likelihood of overdraft fees (of which banks collected $32 billion in 2012, according to the Consumer Financial Protection Bureau).

Pew also found little improvement year over year in the number of banks that allow customers to over-withdraw funds at the ATM: Some 77% (down from 80% in 2013) of the 50 institutions studied still employ this practice instead of denying the transaction.

What's more, banks are making it difficult for customers to legally dispute charges they feel are unfair: 70% mandate that complaints are to be settled by binding arbitration.

“[We need] new rules to require that all consumers have basic protections no matter where they have a checking account,” Susan Weinstock, director of Pew's safe checking practices arm, told Yahoo! Finance.

So how can you protect yourself? Though it sounds counterintuitive, opt out of your bank's overdraft protection service—it's what triggers that $35 penalty. Another strategy for the more detail-oriented is, of course, to monitor your accounts daily to make sure you're not spending more than your balance.

Is There Any Good News?

Fortunately, the findings of the Pew study aren't all negative, and there are several areas where banks have improved over the past year.

All 50 banks and credit unions studied now disclose their overdraft policies, up from 93% in 2013 (so at least we can't say we didn't know). And the number of times a customer can get hit with an overdraft charge in one day fell from five times in 2013 to four in 2014.

Ally Bank topped Pews' ranking system—scoring perfectly in best practices for disclosure forms, overdraft and dispute resolutions. Rounding out the top five are First Republic Bank, Bank of America, Charles Schwab Bank and Citibank.

Click here to read more of the study and to find out how your bank compares.

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