It seems convenient enough: Instead of mailing a check for the same amount to your insurance company every month, they can set up an auto debit system so that your monthly premium is automatically deducted from your checking account on the same day every month. It’s one less bill to worry about, right?
Not so fast. Billers love auto debiting consumer bank accounts because it ensures they get their payments on-time, every time without the costs of processing a paper payment, but auto debits can create headaches for consumers. Before you sign up to pay anybody by recurring automatic debit, consider the following:
Auto debits can trigger overdraft fees. If you don’t have enough money in your bank account on the day an auto debit payment is scheduled, you’ll likely be hit with an overdraft fee of $30 or more. And if you forget about the auto debited payment and try to use your debit card that same day, you could be hit with another fee.
Mistakes are rare, but troublesome. The probablity of your biller or bank making a mistake with a recurring automatic electronic funds transfer (EFT) is rare, but it does happen. And if it does happen—and say, take $650 out of your account instead of $65—it could take days or weeks to get your money back.
Stopping recurring ETFs can be difficult. Once companies get you onto an automatic debit payment plan, they won’t want to let you off—the system works too well in their favor. Although most reputable companies will stop auto debiting your bank account when you ask, you could have trouble if they don’t honor your request. Some banks may charge a stop payment fee of $30 for every time you want to disallow recurring transfers. What’s more, some banks will allow preauthorized debits to go through even if you close the bank account. That means you’ll be on the hook to repay the bank for the debit and fees.
Have you had problems with an automatic debit/recurring electronics fund transfer? What happened? How did you solve the problem? Let us know in a comment!