Paying online doesn't skirt risk of bank overdraft

Dollars & Sense

February 02, 2003|By Liz Pulliam Weston | Liz Pulliam Weston,SPECIAL TO THE SUN

Like you, I've long used online bill payment to make sure my bills get paid on time and that I don't owe late fees.

Recently, I thought I had set up a payment for my mortgage to be paid on the 30th of the month. The bank made the payment on the 15th, which overdrew my account, and then they charged me a $29.50 fee for insufficient funds.

The bank insists I entered the 15th instead of the 30th as the payment date. So I asked the next logical question, which is why the system wasn't smart enough to correct the error (assuming I made it) and hold up the payment or send a warning to the customer before allowing the overdraft to occur?

For that matter, why should anyone have to bounce a check, ever? Surely the banks could give us a jingle when we're about to overdraw our accounts and hold those checks for the days (or weeks) it takes us to make good.

Or maybe you're expecting a little too much of institutions that are in business to make money.

Scheduling an online payment is no different from writing a check: You need to make sure you'll have enough money in the account before you hit "send" (or stick the check in the mail). This is your responsibility, not the bank's.

You can avoid overdraft fees in the future, by the way, simply by setting up overdraft protection on your account.

The vast majority of banks offer this service, which essentially gives you a line of credit to prevent payments from bouncing, and the annual fee is typically lower than what you would pay for a single bounced check.

You also might reconsider your habit of manually inputting regular monthly payments, like your mortgage. It's due at the same time each month, so why not set up a recurring payment so the transaction is handled automatically?

If your online bill payment system doesn't allow recurring payments, you can arrange with your lender to have the mortgage taken directly from your checking account in what's known as a direct debit. (You don't need a computer to set up such direct payments. Just give your lender a call, and fill out the form you're sent.)

You've mentioned that if someone is sued or files for bankruptcy protection, his individual retirement accounts may be more vulnerable to creditors than his workplace retirement plans, such as 401(k) accounts. How about in the case of divorce? Can an IRA or 401(k) be protected from a spouse's claims?

How retirement plans are treated in divorce depends on where you live, but most states consider the plans as part of the property to be divided in a divorce.

In community property states, such as California, any contributions to a plan during marriage and any gains on those plans are typically considered the property of both spouses, which would be divided evenly.

The laws preventing creditors from wiping out a workplace retirement fund are designed to keep people from being left destitute in their old age. The rules preventing one spouse from "protecting" retirement plans from his or her mate are designed for much the same purpose.

How should we determine what is an appropriate budget for a family of four with one working spouse and an income of $150,000?

An appropriate budget is one that allows you to save for your goals; pay off or stay out of debt; and feed, clothe and shelter your family. Beyond those general guidelines, almost anything goes. No one can tell you the "right" amount to spend in any category, because that depends on your family's values, situation and objectives.

If you're unclear on how to start a budget, gather up your bills and checkbook and track what you're already spending. Once you know where the money is going, you can make adjustments. If you want to save more for retirement, for example, you can cut back on dining out. If you never seem to have enough money for a family vacation, you might consider trimming your holiday gift-giving so you can put more away.

You also can use personal finance software, such as Intuit's Quicken 2003 or Microsoft's Money 2003, to help you track your spending and construct a budget.

Liz Pulliam Weston is a contributor to the Los Angeles Times, a Tribune Publishing newspaper.

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