Beat the banks at their own game and take control of your finances with these easy tips for preventing overdraft fees.
Debit cards and checking accounts are appealing because unlike credit cards, you won’t be tempted to spend money you don’t have. That’s what most people think. The reality is that you can opt into overdraft protection to work around this limitation. With this service, you can complete transactions that exceed your account balance any time. Sounds good, right? Not so fast, my friend.
Ask any consumer advocate and they’ll probably advise you against opting in. That’s because doing so will get you face to face with those dreaded overdraft fees.
What’s a Bank Overdraft Fee?
Let’s say you’re withdrawing money from an ATM, writing a check, or making a debit card purchase. Opt out of overdraft protection and your transaction will simply get declined. Opt into the service and each transaction that exceeds your account balance goes through.
Here’s the catch: this convenience comes at a price—$35 per overdraft, to be exact. Some banks even charge you $2 to $5 per day until your bank account is no longer in the red.
Banks Love Overdraft Protection
The fact is that overdraft fees rake in substantial profit for banks. In fact, American consumers have paid a whopping $34.3 billion in overdraft fees in 2017 alone. That’s how much banks have earned from overdraft protection.
The sad part is that half of the consumers whose accounts have gone into overdraft don’t even recall opting in. So if you suspect that you’ve unwittingly opted into overdraft coverage, call your bank and ask to opt out.
6 Ways to Prevent Overdraft Fees
At the end of the day, all you need to remember is that overdraft fees are avoidable. Just download loan apps like Earnin app, follow these financial management tips, and you’ll effectively reduce the risk of incurring such a costly penalty.
1. Opt out of overdraft protection
Do this and your bank cannot cover one-time ATM or debit card transactions. You won’t get charged with overdraft fees for them, either. Without this coverage, any transactions that make your balance negative will be declined. Banks can still cover recurring debit transactions and checks without your permission, though.
2. Monitor your account balance and transactions
It’s really easy to check your balance and account transactions these days. You don’t even have to wait for your monthly checking account statement to do it. Simply sign up for electronic and mobile banking and you could monitor your account activity on your computer, at the ATM, or with your phone.
3. Sign up for automatic online alerts
Ask your bank if they can let you set up electronic or mobile alerts to notify you when your account goes below a predetermined threshold. Set $50 or $100 as the limit, and if your account dips too low, you’ll automatically receive a warning via email or SMS. This should come in handy whenever you go on a shopping spree with your debit card in tow.
4. Don’t use your debit card for certain transactions
Try not to use a debit card to check into a hotel, buy gas, or rent a car. As it turns out, these businesses place holds or blocks (often amounting to the full bill or more) on your checking account when you pay by debit card. Although no money leaves your account with a block, it can affect and limit your available balance. In such cases, it would be much better to transact with a credit card.
5. Set up automatic payments
Set this up from your checking account for loans, utilities, and other monthly bills you need to pay for. This way, you’ll have fewer checks to write and clear each month. You can even specify the exact date that a certain amount leaves your account with automatic bill payments.
6. Link a checking account to another account
See if your bank offers an overdraft protection transfer service. This usually involves linking your checking account to another savings account or credit card. Once they’re linked, money will be transferred from the linked account to your checking account in case there isn’t enough cash in it to cover a current transaction. Although there might still be a subsequent fee, it’s much cheaper than overdrafts.
The truth is that banks want to keep you as a customer. That’s why they’ll likely waive the overdraft fee if it’s your first time overdrawing your account. You might not be so lucky the next time you make the same blunder, though.
In that case, take note of these savvy financial management tips or use a tool like Dave app. Either way, you get to avoid paying for those hefty overdraft fees. Curious what that mobile app can do for you? It’s simple, really—it acts as an overdraft protection but without the associated fees. Neat, isn’t it?