I pursue flexibility and convenience like it’s going out of style and online banking has helped me achieve precisely that. Yes. I’ve heard this several times, “Automation is the new discipline”.
But it depends what type of automation we are talking about. There’s calling over the phone (as long as there are no costs) to pay your bills and then there’s fill out forms to authorize that the funds be withdrawn from your account monthly. Sometimes the offer to have the automatic withdrawals from your account comes with an “incentive”.
Say you buy a brand new car for $25,000 with the interest rate at 2% for 5 years. This is a payment of $438.19. You are told if you signed up for automatic payments you would get .25 rate reduction. This would bring your rate down to 1.75%. You are excited; you just got a fantastic deal. Before you get too excited, this is a lower payment of $435.47 meaning a difference of $2.72 monthly. In a year, that is $32.64. In five years, $163.20.
The day there is a glitch in your company’s payroll system because the new hire hit the wrong button or there’s a holiday and your paycheck wasn’t deposited into your account the day you were expecting (this happens a lot depending on holidays, or bad weather) you will spend half the day trying to contact every company on your automatic debit list to either a) not process the payment that day b) contact the bank to ‘reject’ the transaction. This would mean precious time wasted over the phone. There are greater things to be achieved in a day than spending time trying to stop the chaos that is about to unfold in your checking account should those payments come through and bounce. Also, a one time stop may not be effective right away. Oh noooo! You may be told to allow up to 3 business days for that to take effect. This is not free either; there could be a stop payment fee an average of $25.
A bounced transaction fee or insufficient funds fee (average of $30) goes both ways. So you and the company you’re paying get charged. Of course the company will pass their own fee plus any late fees to you. One bounced transaction fee of $30 has wiped away any “savings” you thought you were getting. If this happens say 3 times in a year, that’s $90. Oops! There goes part of your five year $163.20 savings.
Technology has allowed convenience but you cannot put your life and in this case, your accounts on cruise control. Signing those forms is like giving strangers the key to your apartment and assigning days they can come into your home. Well, the strangers already have the key. In some small ways, you are losing control of your account.
Here Are A Few Suggestions:
- Collect the payee’s information i.e name and address and add them to your checking account Bill payer. This will allow you sit and review your account each time you have to make a payment to ensure that the funds are actually there.
- Ask the payee what methods they accept payments i.e checks, cash, over the phone with a debit or credit card (in case you’re at crunch time). If over the phone, is there a fee?
- Ask if the company is on the electronic network. Electronic network means that the payment will get to the company within 1-2 business days. If they are not, this means the Bill Payer is sending a check. This could take 5-10 business days depending. Note: if you are making a payment to a credit union, they are most likely not on the electronic network.
- What dates the payment is due and the grace period if any; this is VERY important because life happens. You know, we go on vacations and in a bid to escape reality, forget our bills hoping there’s a magic wand somewhere we can wave 3 times and ALL our bills would disappear upon our return.
If after reading this, you are still convinced automatic debits is the way to go, that’s fine. Personal finance is what it is personal. Be sure to look into your bank’s overdraft protection program at least so that your transactions don’t bounce and you don’t incur fees. While I don’t fill out debit authorization forms, I always fill out credit authorization forms i.e tax refund, direct deposit, basically any form that puts money into my account. Yeah baby! More credits please!
Author Bio: Ogechi Linda Igbokwe holds a BSc in Professional Communications and a Masters in Accounting. She has worked in banking for 7 years and created the OneSavvyDollar Curriculum. You can catch her speaking across Long Island and blogging at onesavvydollar.