OK, let’s say you’re a photographer. You have a big job offer, which will require you to borrow a camera. You'll have to pay a rental fee, figured by the hour or the day. The longer you keep the camera, the more rent you will pay. Interest is like rent on money you borrow.
Now let’s say that, instead of you borrowing a camera for the day, you borrow $1,000 from your credit union. Each month that you do not return that borrowed $1,000, you must pay a kind of rent for using it, otherwise known as “interest.”
By the time you repay the $1,000 after one year, at 12 percent interest, you will have paid back a total of $1,120.00—the $1,000 you borrowed plus the $10 per month interest (rent) for the privilege of using money that did not belong to you ($1,000 x 12 percent = $120 / 12 months = $10).
Reverse that process to see how you can earn interest. You own the equipment and rent it out to others, or you lend your money to others and charge them interest. Borrowers pay interest; lenders earn interest.
That’s a simplistic way of explaining the principle behind paying interest. Hope it helps.
Now I’m worried that when the checks do clear my bank, the money will be paid from my account again. Can companies just do this without customer authorization? —Danielle
You really have no say in the matter. When you write a check, the money is no longer yours. The merchant can process your check in the most expeditious way possible. You should assume that all checks you write will be turned into electronic payments the moment you hand them over.
You are wise to be concerned about double-processing. That’s why you should always watch your account carefully to make sure no checks are deducted twice. Should that happen, contact your bank immediately.
How can I avoid having to pay a bank that didn’t even help me close the account or waive part of those fees? I tried to contact them, but all they want is payment. They don’t want to negotiate. —Marianne
This is not going to just go away on its own. It’s time for you to take responsibility.
Your mention of a credit card leads me to believe you have a pre-established credit line to cover overdrafts. If so, set up a repayment plan immediately.
However, on the off chance you are only assuming you have such an account when, in truth, you have become the beneficiary of the bank’s “courtesy overdraft” policy, you need to move quickly to stop the bleeding. It’s possible they are adding a penalty for every day you are in the red. Ouch!
