Latest Posts Under: Personal Finance

Overdraft protection is a handy last defense line. The more you make use of it, the more hazardous it turns to be to an individual’s financial state. If correctly used, it will be a wonderful idea. There are few pros as well as cons when making use of this service on a person’s checking account.

What Is An Overdraft?

It occurs when individual attempts to make use of one credit card, write any cheque or may withdraw a sum of money from his bank account. But the transaction is incomplete due to insufficient funds.

On the basis of the institution, either one overdraft transaction gets processed or rejected. So in both cases, a fee is charged in the procedure.

Some financial institutions may charge a huge number of a non-sufficient fund or NFS fees, but most of them limit it not greater than $7 each day. If any account stays with a balance that is in negative for a long duration, extra fees are charged.

Depending on the fee schedule of a bank, these may get charged every day or weekly. An extended overdraft fee may equal out to $10 each day at some of the institutions.

What Is Overdraft Protection?

It comes in many different forms. The basic idea is if an individual makes one transaction on his debit card and it exceeds the amount present in your account, the overdraft protection will be providing you with the additional fund that you require for covering it.

However, it is one such service that will not be performed without a charge often. It saves you from the embarrassment of declination of your card.

The type of overdraft protection that comes first is by linking your checking account to another, mostly a savings or one credit card.

Some financial institutions allow individuals to link several accounts.

As an account holder, if you overdraw your checking account then funds get transferred from your linked account for covering that transaction. You will get charged with a transfer fee.

Another type of overdraft protection is known as an overdraft line of credit. This type of overdraft protection allows a bank to loan you fund for covering your overdraft cost.

Depending on a certain bank, you may be charged interest on such a line of credit as well as be always charged with a fee for an overdraft in order the cover that transaction.

Pros Of Overdraft Protection

• It eliminates any sort of embarrassment at the line of checkout. It will pay one cheque or let any transaction to clear out even if you are not having sufficient money in the account. You do not have to face any situation where the item has to be returned or any transaction will be declined. The transaction will get paid along with the fee for the overdraft.
• Cash will be available for emergencies. You will be able to access the money that you require in an emergency condition such as home repairs, small medical expenses, flat tire, etc.
• Cash is available between the paycheques. If money is not enough in between the paycheques, you will get access to the money to help you survive via the next payday. Such temporary access to money will be assisting you during any financial gap because of a sudden expense.

Cons Of Overdraft Protection

• It is costly. According to research, the average fee that customers faced for overdrafts is equal to $30. Financial institutions charged $31.9 billion in overdraft fees. So if a person is not careful then five transactions that are approved on any overdraft account each year will cost a person $150 or greater. Even if a person’s money is there to cover the shortfall, banks will also charge a transfer fee or overdraft fee. If it is an overdraft credit line, a person needs to pay the interest on the borrowed amount until he repays.
• Overdraft protection will encourage overspending. It is considered to be a convenience, but often it removes the attention from the activity of the account and fund availability. It will make you overspend as it will allow an individual to spend up what he does not have.
• It is very addicting. Most of the regular users of such a service start to eventually have a feeling that they cannot survive without making use of it. Too much use of overdraft protection will result in maintaining almost very little amount in your checking account as the deposit will be used by the overdrawn sum of money along with the fee for an overdraft. It will never leave sufficient in your account to survive until it is time for the next paycheque that will be increasing your dependence on it for filling in the financial space.

If you use overdraft protection, ensure it is via a linked savings account and no credit line.

Linking one credit card to the checking account is a better alternative than a credit line because using it too frequently might get you involved in bad habits that cost a lot in the future.

Negotiable instruments have been considered to be a very vital tool if it is concerning any business or finance. They aid every party to smoothly conduct the business. They can also become a source of funding if in need of money.

What Is A Negotiable Instrument?

It is a document, basically a written order with the name of the payer mentioned on it.

Thus it guarantees payment of a certain amount of money immediately or maybe at a scheduled period that is future dated.

It promises payment without any condition.

You can use as well as interpret the document in a little different way on the basis of what country you are using it in as well as what law is getting applied along with its context.

The best instances of these instruments are banknotes such as dollar bills and pound notes along with cheques, demand drafts, bills of exchange, promissory notes as well as certificates of deposits.

As the money has been promised to be provided on demand or at some certain time, this instrument is at times used by any holder as a value store and he holds on to that.

Negotiable instruments technically call for money payment. Lading bills and receipts of warehouse calls for merchandise delivery and thus can never be considered as negotiable instruments in the legal sense. But they can be negotiated if order documents are made.

What Are The Features of Negotiable Instruments?

• Can Be Transferred Easily: It is transferrable easily as well as freely. No such formalities or paperwork are involved in the transfer. Ownership of a negotiable instrument can be simply transferred by delivery or by any valid endorsement.
• Should Be Written: Each and every instrument must be present in writing. It includes printed, typed, handwritten, engraved notes and many more.
• Certain Payment Time: If the payee makes payment according to his convenience and time of the payment is not certain, then such an order is never a negotiable instrument. The time period must be certain. It may or may not be specified date. For instance, if the payment time is linked with a particular individual’s death it can be accepted because death is one certain event.
• Specific Payee: The individual to whom the payment must be made needs to be a specific person or maybe persons. More than one person can be a payee for this instrument. Payees also include artificial persons such as trade unions, body corporates, chairman, secretary and so on.

What Are The Types Of Negotiable Instruments?

• Promissory Notes: It refers to a promise that is written to its holder. It is written by any individual or entity for paying a certain amount of money by a date that is pre-decided. It is basically an amount that an individual owes to you or vice-versa along with the rate of interest as well as the payment date. A seller is never bound to accept any promissory note. The buyer’s reputation is of more importance to the seller to decide if he should accept it or not.
• Bill Of Exchange: It refers to a binding, written legal document that instructs any party to pay off an amount of money that is pre-determined to another party. Some bills may state that the money is due on a scheduled date which is future dated or may state that it is due immediately. It is used in some transactions that pertain to goods and services. A bill of exchange is signed by one party who actually owes them money and is known as the payer and is given to one party who is entitled to get the money and is known as the payee or the seller. Thus it could be used to fulfill the contract for the payment. A seller can also endorse it and offer it to another person. Thus it will be passed to some other parties. Always remember that when it is issued by any financial institution, it is referred to as a bank draft and when issued by any individual then called a trade draft.
• Cheques: It refers to one such instrument in writing that contains one unconditional order. It is addressed to any banker and then is signed by that individual who deposited the money with that banker. In this order, the bank should be paying a specific amount of money immediately to the cheque bearer or maybe to anyone else who must be paid specifically according to the instructions provided. Cheques are a great way of making payments for varied bills. Usage of cheques may be getting reduced with the passage of the years because of online banking, but people are still seen to make use of cheques for loan payments, clearing college fees, making EMI payments of cars and many more. It is also an effective way of tracking down all transactions on the paper. But they are a slow payment method in comparison to the others and will take some time for processing.

Negotiable instruments are beneficial business channels revolving around the financial market of a country.

Their unique specifications such as liquidity, transferability, safety, etc. make these negotiable instruments very famous in conducting business not only domestically but also globally.

Cashier’s check and money order both are beneficial tools to make payments and they also come with a similar appearance.

But there are some significant differences among the two that will determine which is the best for a person’s requirements.

In general, cashier’s check includes higher limits, but are can only be availed from any financial institution.

What Is A Cashier’s Check?

It is a type of official check which is issued by a bank. You should never confuse it with any certified check that is also issued by a bank.

A cashier’s check is secure as the bank directly takes the money from the account and then puts it on its own. Thus it is guaranteed that the check will not bounce. So whoever you require to pay the money will surely get it.

You do not need to worry about an overdraft or non-sufficient funds fees that are charged if you do not maintain sufficient money in the account for covering a check.

If you require to make any large payment for your car, then due to the safety factors cashier’s check will be a better option. Sometimes a cashier’s check might be the only payment alternative available for you. While buying a home, the lender will need you to bring a cashier’s check for paying whatever you owe at the time of closing.

Cashier’s check can also be fraudulent and involved in financial scams. Scammers are seen to give you something that looks similar to any official cashier’s check that you deposit in your account. After a few weeks, your bank will discover that this check is fake. So always be sure to check the authenticity before depositing the check or trying to cash it.

What Is A Money Order?

It is a secure payment.  Money orders can be bought easily and are less expensive.  Thus they are best suited for smaller payments or if you cannot write any personal check.

For example, you can make use of money order for paying your rent or sending $100 to a dear one who is running out of cash. If you purchase any money order, you need to pay for that with cash, debit card or a traveler’s check.

You can never use a credit card or write any personal check. If a credit card is used it will be treated as a cash advance. You also need to pay a fee for it but it is less expensive. On the basis of where you purchase a money order and what the amount is, the fee might be lower than $1 or equal to $5.

It is easier to replace a money order if they are stolen and lost.

You can replace a stolen or lost money order by returning with the receipt to that place from where you purchased it and then asking for a refund or a replacement. A fee may be charged by the issuer for replacing it. But you will receive it then only and do not have to wait for months.

Differences Between Cashier’s Check And Money Order

The main difference between cashier’s check and money order is the cost and from where they have been purchased. Typically money orders are usually offered in small amounts, can be obtained at several varied locations and are priced at a few dollars.

On the other hand, cashier’s check is mostly issued in huge amounts, can be obtained from a bank and cost more.

On the basis of what the money is used for, there lie some differences between the two type of payment options as mentioned here:

A money order is a piece of paper that is prepaid. It is exactly the same as a check that you receive in exchange for some cash. It can be used to send money to people and the recipients can also deposit them easily in their bank account.

You cannot get them from a bank. There are various places that sell these money orders such as post office, Western Union and convenience stores along with supermarkets. You can also cash your money order from these places. Money orders will cost you a few dollars and can be purchased until $1000.

A cashier’s check is almost similar to a money order, but it is issued by a bank and needs a bank account. If you obtain a cashier’s check, a bank will be holding or removing funds from your bank account and then send you a check issued from the bank in your requested amount. You need to pay a fee for it to the bank. You can use it similarly like a money order or a personal check.

The one and only difference is since the approved funds are guaranteed by a bank and then removed from an account, recipients can immediately access the funds. Cashier’s check is more costly than money order but is known to be more reliable as it backed by a bank. Although it is still received for a few dollars generally under $10.

If you plan to purchase anyone, check the fees that are involved and any limits put by the issuer on the money you can obtain them for. You need to keep a receipt or statement that shows when they were purchased if they are stolen, damaged or lost.