Buzz
Setting up automatic bill payments takes one less thing off your plate when managing your finances. However, if your budgeting isn't meticulous, or if you’re on a tight budget, automation could lead to overdraft fees. The easy fix? Connect a second bank account to your bill payment system.
My Bank Tracker's article on "holding accounts" explains that certain bank accounts temporarily hold your funds in a separate account until the merchant requests payment. This process can take a few days.
If you're unaware of this process, it’s easy to overdraft your account by simply making too many purchases without enough funds to cover your previous charges. Depending on the charge size, it can happen quickly if you’re not paying attention... If issues arise, your bill payment service may be interrupted, leading to bounced checks and a cascade of complications. Problems can escalate fast once they start.
Their advice is to link a second bank account to each of your bill pay accounts. This ensures that if you encounter a "holding account" issue, the funds will come from the backup account, preventing overdraft or payment fees.
Naturally, adding an overdraft cushion or setting up overdraft protection for your bank account is an easy way to avoid fees—this is just another alternative. Be sure to read their full post for more details.
Image courtesy of Jason Rogers.
