Ask Terry Questions When banks pay checks before crediting deposits

When banks pay checks before crediting deposits

By Terry Savage on October 05, 2018 | Wild Card

Why is that for most institutions, it is illegal or to some extent; criminal, if they do not log events in chronological order, such as a worker’s time stamp but for banks the practice of reorganizing the occurrence of debit and credit transactions to gain the banks higher profits at the expense of the consumer is perfectly legal?

Terry Says

I know what you’re talking about! The “order” in which transactions are prioritized can make a difference in overdraft fees, and impact your credit report. Here’s a clip from an item on
The order in which a bank processes your transactions can make a huge difference in whether or not you end up with insufficient funds. You might assume that banks simply process your transactions in the order they take place. However, according to The Pew Charitable Trusts, some banks actually process debits first.

Say you have $100 in your checking account. You deposit $75 and then head to the store and make a purchase for $125. You shouldn’t have to worry about an overdraft charge, right? Not if your bank prioritizes debits over credits.

Everything is “pending” until the final process of the day, at which point your debits are all subtracted from your account and then the credits added. With this method, chronological order doesn’t matter. So, your $125 is taken first, meaning you have an overdraft. You now owe $25. If your bank charges an overdraft fee of $35, you’re $60 in the red.

Only after that is your $75 deposit applied. You think you have $50, but in reality you have $15 in the account. Unless you’re paying attention, you could easily find yourself overdrawn again the next day when you make a purchase.

Basically, it’s up to the bank to decide how it prioritizes deposits and debits. Be careful!



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