Overdraft fees can be an absolute burden, making it difficult to stay in check financially. Banks can charge a hefty fee ranging from $10 to $35 each time you overspend – and that’s only the start of it.
When your account goes into the red due to an unexpected fee, extra costs such as returned item fees can quickly accumulate and make it even harder to keep up with your finances. This snowballing effect could potentially lead to more serious financial troubles.
How to Avoid Overdraft Fees
The following are ten strategies that can help you avoid overdraft fees on your checking account.
1. Keep a Close Eye on Your Account
Staying on top of your account balance is key to avoiding overdraft fees. One way to do this is to set up balance alerts. They will let you know if your balance ever falls below a certain level, so you can take action quickly.
Additionally, make it a habit to check your bank statements or use online/mobile banking applications occasionally. This will aid in keeping tabs on all income and expenditure respectively. Doing this routinely can help ensure that any potential overdrafting issues are avoided altogether.
2. Maintain a Financial Buffer
Keeping a buffer in your account can provide a safety net in case of unexpected expenses. To determine your typical expenses and income, it’s wise to create a budget and track your spending.
Maintaining a cushion in your account can help cover unexpected costs and prevent overdrafts. Additionally, consider setting up direct deposit to ensure a steady stream of income and avoid potential delays in payments.
3. Avoid Automatic Payments
Automated payments can be a great way to save time and hassle, but if you’re not careful, they can also lead to an overdraft fee. So, if you’ve been dealing with this issue lately, it may be worth considering other payment methods.
To take control of your finances and close monitoring of your accounts, switching from automatic to manual payments might do the trick. It can give you more awareness when it comes to tracking payment timelines and account balances.
4. Opt-Out of Overdraft Protection
Overdraft protection allows you to use more than the available funds from your accounts and avoid being declined at the point of sale. While this service may seem beneficial, it can come with its own set of problems. If you use this feature frequently, the fees can easily pile up in hundreds of dollars annually.
If you want to opt out of overdraft protection, there are a few steps you can take. Some banks and credit unions may offer an opt-out option that you could initiate either on your account’s web portal or by contacting customer service.
If your bank doesn’t off that, you may want to consider switching to a bank that does. By opting out of overdraft protection, you’ll be forced to manage your account balance more carefully, which can ultimately lead to better financial health.
5. Choose a Bank with No Overdraft Fees
Finding the perfect bank for your financial needs can be a challenging task, given the multitude of options available. To ensure you end up with a bank that meets all of your requirements while avoiding any unexpected fees, you’ll need to do some comprehensive research.
You could begin by comparing online banks. In many cases, they offer lower fees and higher interest rates than their brick-and-mortar counterparts. Just remember that there may be limitations or other restrictions associated with online banking which might make them not suitable for you.
Whilst researching prospective banks, make sure to thoroughly read the details regarding fees such as ATM charges, monthly maintenance costs, and other additional charges. Don’t forget to take into account factors such as mobile banking facilities or free bill pay when making an informed decision. These features might prove particularly beneficial in the long run.
6. Set Up Alerts for Low Balances
Setting up low balance alerts can help you avoid overdraft fees by letting you know when your account is getting low. It’s easy to do and can be done through your bank’s mobile app or online banking portal. Plus, it can give you peace of mind knowing you’ll be alerted before your account balance gets too low.
7. Deposit or Transfer Money Quickly When an Overdraft Occurs
If you do end up with an overdraft, it’s important to act fast. The longer you wait, the more fees and financial problems you may face. Quickly depositing or transferring money can help you avoid these issues.
There are several ways to quickly deposit or transfer funds. One option is to visit your bank or credit union in person and make a deposit. Many banks also allow you to deposit checks using mobile deposit through their app.
Another option is to transfer money from another account. This could be a savings account, a credit card, or even a friend or family member. Just make sure to transfer enough funds to cover the overdraft and any associated fees.
If traditional deposit or transfer methods aren’t available or don’t work for you, consider alternative options like peer-to-peer payment apps or online payment services. These can be fast and convenient, but make sure to read the terms and fees carefully.
Remember, the key is to act quickly to avoid further financial problems.
8. Link Your Accounts
Linking your checking and savings accounts can help you avoid overdraft fees. If you overdraw your checking account, funds can be automatically transferred from your savings account to cover the negative balance. Be sure to keep enough money in both accounts to avoid potential fees.
9. Negotiate with Your Bank
If you’ve been hit with overdraft fees, it’s worth trying to negotiate with your bank. Contact your bank and explain your situation. You may be able to request a waiver or reduction of fees. To increase your chances of success, come prepared with a clear explanation and a specific request.
10. Use a Prepaid Debit Card Instead
A prepaid debit card can provide a viable alternative to a traditional checking accounts. They offer benefits like avoiding overdrafts by only allowing you to spend from the funds you’ve loaded onto them.
However, keep in mind these cards may have additional fees associated and you should try to find one that best fits your financial needs. To ensure this, get an in-depth understanding of both the advantages and potential downsides when it comes to using prepaid debit cards, as well as how to make the right choice for yourself.
Here’s a list of the top prepaid cards for 2023.
Frequently Asked Questions
What is an overdraft fee?
An overdraft fee is a fee that banks or credit unions charge when you spend more money than you have in your account, and your account goes into negative territory.
How much do overdraft fees typically cost?
Overdraft fees vary from bank to bank, but the average overdraft fee is around $35 per transaction. Some banks charge a daily fee as well, which can add up quickly.
Is overdraft protection a good idea?
Overdraft protection can be a good idea if you frequently have trouble keeping your account balance positive. However, it’s important to note that some banks charge a fee for this service, and if you link your checking account to a credit card, you may incur high-interest charges.
What is a debit card hold?
A debit card hold is a temporary freeze on funds in a bank account, usually initiated by a merchant or vendor, to ensure that there are enough funds in your checking account to cover a transaction. The amount of the hold may vary depending on the transaction, and the hold may take several days to clear.
During this time, the held funds are not available for the account holder to use, which can cause problems for people who have limited funds in their account. Debit card holds are commonly used for gas stations, rental cars, and hotel reservations, among other things.
How can I avoid debit card holds?
To avoid debit card holds, one can consider using a credit card for larger purchases, as credit cards are less likely to have holds placed on them. Another option is to ask the merchant to split the transaction into smaller amounts, which may decrease the likelihood of a hold being placed.
Additionally, using cash to pay for purchases can eliminate the need for a hold altogether. You can also that there are enough funds in the account before making a purchase to avoid debit card holds. Keeping track of account balances and transaction history can be useful for preventing unexpected holds on funds.
What should I do if I can’t avoid an overdraft fee?
If you can’t avoid an overdraft fee, try to pay it off as soon as possible to avoid additional fees. If you’re having trouble with overdrafts on a regular basis, consider talking to a financial advisor or credit counselor for help managing your finances.
Which banks don’t have overdraft fees?
There are several checking accounts that don’t charge overdraft fees, including Chime®5, Chase, Current, Quontic, Axos, and SoFi. However, while these banks may not charge overdraft fees, they may still have other fees associated with their accounts.
For example, they may charge monthly maintenance fees, ATM fees, or transaction fees. Be sure to review the fee schedule of any checking account you are considering to ensure that you understand all associated costs fully.
What is a second chance checking account?
A second chance checking account is a type of checking account that is designed for people who have a history of unpaid overdrafts or negative balances. These checking accounts are designed for people can’t open a traditional checking account because of a record in ChexSystems.
What are NSF fees, and how do they differ from overdraft fees?
NSF fees, or non-sufficient fund fees, are charged by financial institutions when there are not enough funds in an account to cover a transaction.
Overdraft fees are imposed when account holders spend more than what is available in their accounts, resulting in a negative balance.
In other words, overdraft fees are associated with overdrawn accounts, and account holders owe the bank money, while NSF fees are charged when a transaction is refused due to insufficient funds.
Chime is a financial technology company, not a bank. Banking services and debit card provided by The Bancorp Bank N.A. or Stride Bank, N.A.; Members FDIC. Credit Builder card issued by Stride Bank, N.A.
5. Chime SpotMe is an optional, no fee service that requires a single deposit of $200 or more in qualifying direct deposits to the Chime Checking Account each at least once every 34 days. All qualifying members will be allowed to overdraw their account up to $20 on debit card purchases and cash withdrawals initially, but may be later eligible for a higher limit of up to $200 or more based on member’s Chime Account history, direct deposit frequency and amount, spending activity and other risk-based factors. Your limit will be displayed to you within the Chime mobile app. You will receive notice of any changes to your limit. Your limit may change at any time, at Chime’s discretion. Although there are no overdraft fees, there may be out-of-network or third party fees associated with ATM transactions. SpotMe won’t cover non-debit card transactions, including ACH transfers, Pay Anyone transfers, or Chime Checkbook transactions. See Terms and Conditions.