When you’re low on funds and overdraw from your bank account, it can really feel like a kick in the teeth because you’re already tight on cash and then have to pay an extra fine.
Of course, from the bank’s perspective, it makes sense to have some sort of measure in place. If they didn’t, what would stop people from impulse buying? Or running amok every day using their debit card as if it were a credit card?
But it’s not always impulse-buying when over half of all Americans are living paycheck to paycheck. And 57% of Americans can’t write a check for $500 to cover a surprise expense.
Maybe one day the standard of living will be good enough that people won’t have to read over the fine print when choosing a bank. Until that day comes, let’s talk about options.
If you’re worried about overdrafting, we’ve uncovered the best banks for low and sometimes even $0 fees.
Which banks charge $0 or low overdraft fees?
There are a few options out there to avoid paying hefty overdraft fees. Luckily, the list seems likely to grow even more in the years ahead. Why? A recent FICO survey found that Millennials are two to three times more likely to close all accounts and switch banks completely.
It should really come as no surprise — expensive fees.
In the next couple of years, Millennials will occupy half of the American workforce, so expect more and more banks to be added to this list in the years ahead. Until then, here are current banks offering consumer-friendly overdraft services.
Chime has a new fee-free overdraft feature called SpotMe. They spot members up to $100 on debit card purchases when their balance is low, with no overdraft fees.
Chime is a mobile-only bank. For most people, this isn’t a problem until they need to deposit a check or make a withdrawal. Chime provides a variety of ways to still do these things, but again, it’s not as convenient as finding a local branch of your bank and driving through their drive-through on your way home from work.
To avoid paying fees, whenever you need cash you’ll need to find a specified ATM via your mobile app. If you get into a situation where you can’t do this, you’ll likely have to pay inflated ATM fees as a result.
If you want to deposit cash into your account, you have to find a designated Green Dot location.
At the moment you can’t deposit a check by scanning it with your smartphone. It’s kind of mind-boggling seeing as how they are a mobile bank, but they promise on their site that they’re going to be rolling this out in the near future.
Chime seems to recognize that it has a few shortcomings, and so it has some pretty awesome instant cash rewards on select bills and purchases to make up for it. If you’re interested, make sure you check out these perks so you can make the most of what this unique bank has to offer.
Talk about user-friendly! Simple has one of the best mobile apps on the market and provides users with some helpful tools to help you manage your money more effectively.
Users can, for example, input all of their upcoming bills and needed purchases. Simple then calculates how much money is ‘safe-to-spend.’ What better tool is there to have with you before you hit the town on Saturday nights?
Simple also doesn’t have any minimum bank account balances, monthly fees, or — you guessed it — any overdraft fees. The way it gets around charging an overdraft fee is quite simple: it doesn’t allow any transactions to exceed the user’s balance.
Attempt to do so and the card will be declined. For many people, this is just what they want. And with Simple’s powerful, intuitive mobile app, there’s really no reason anyone shouldn’t know how much money he or she has.
Though Discover does charge a $30 fee if you have a negative balance, it only does so once a day. Many banks charge a similar amount each time you overdraw. So if you overdraw your account at a deli for lunch and again at the grocery store, Discover would only charge you a single fee.
However, Discover didn’t make the cut just for this. With Discover, you can connect your account with a savings account or a money market account and get a free transfer any time your account needs the funds.
Fidelity Investments is a bank that truly offers its customers zero-fee banking. If you have overdraft protection, there’s no charge to use it; however, if you don’t have overdraft protection, your card will simply be declined.
What happens when you do sign up for overdraft protection?
You can link your account with either a savings account or a brokerage account. If and when you overdraw from your account, funds will automatically be pulled from these accounts to cover the transaction.
Again, this all happens for free.
Capital One 360
Capital One actually does something pretty cool for overdrafts. When you overextend your checking account, Capital One lets you borrow money that you can then pay back month-to-month at a pretty decent APR of 12.25%.
Say you go over your checking account balance by $50. Instead of being fined an overdraft fee of $35, and then being immediately harassed for the $50 the next day, you would instead have a $50 credit debt plus the pennies in interest you would owe by the end of the month.
That’s a much better scenario than you would get at other banks, don’t you think?
If you sign up for it, TIAA Bank (formerly EverBank) offers a line of credit any time you overdraw. The rates are variable, and if you miss a monthly payment there is a $25 late payment fee.
Another option with TIAA Bank is to link another line of credit or account with your Everbank account. The transfer, should you need it, is free.
If you don’t do either of the above options, there is a $30 over-withdrawal fee.
If you have a Schwab One brokerage account, Schwab will pull money from it for free if you ever overdraw your checking account.
Do know, however, that this overdraft protection doesn’t pertain to checks or electronic withdrawals or payments. If these cross the line, you’ll get a $25 insufficient funds fee, which can add up to $100 a day.
Axos Bank comes with no monthly fees, full reimbursement for fees incurred while using any ATM in US, plus some pretty competitive cash back rewards.
As you might have guessed, Axos has zero overdraft fees for people who spend more than what is in their bank account. There are two ways for users to accomplish this. Option one involves not signing up for any protection and letting your card simply be declined.
The second option is to sign up for for a line of credit with them. The APR is not great — a somewhat high 18% — and interest begins to accrue the day of the transaction.
If you are looking for fee-free banking, Axos Bank is a strong choice.
Ally Bank is not technically a zero overdraft fee bank, but it is pretty close compared to others.
Sign up for their overdraft protection plan and Ally will move funds from your savings account to your checking account in $100 increments. So, the downside is you have to have money in the first place to move around, but the plus side is that they won’t charge you to do so.
If you don’t sign up for any kind of overdraft protection, you will be charged $25 per day you have a negative balance. It’s not the best scenario, but many other banks charge more for each infraction.
Tips to Avoid Overdrafting Your Account
Though the banks discussed above offer some solutions, there are things you can do to lessen the likelihood of overdrawing from your account.
First off, there are three things that suck up most people’s paychecks every two weeks.
- Student Debt
- Car Payments
Is this the boat you’re in?
Experts say you should never spend more than 28% of your income on housing, nor should you spend any more than 10% to 20% on transportation.
Simply put, don’t live beyond your means. Do the math before you commit. These things may be pretty, but if their monthly payments mean you won’t be able to afford a fast food run once in a while, then you can’t afford them.
Yes, there are things you can do to lessen your student debt before you matriculate, but it’s unlikely you’re in a position to take advantage of those things now. So, apart from consolidating your loans and getting into an income-based repayment plan, let’s focus on some practical things you can do to stay on top of your bank account.
1. Use cash for all purchases
It’s not the most convenient thing to go to the bank and withdraw cash whenever you need to spend money.
To get around doing this, simply take out as much money as you can and leave just enough in to pay your mortgage, car payment, and any monthly bills you have. Leave your debit card and credit card at home, and only take just enough cash with you when you go out.
This way your budget is a very real one. If you go over, you can’t pay for what you’re trying to purchase. It’s not stressful, it’s practical. Use your phone as a calculator, know your state’s sales tax, and you’ll be just fine.
Groceries are what really get people into a bind when using this system. For cash to work when grocery shopping, you need to have a list with every item on it before you go out.
Stick to the list, know how much your bill is going to be before you even get to the register, and buy nothing else. Over time, you can save buckets of money doing this.
2. Use a prepaid debit card
This is basically the same as using cash, but you have the added security that comes with a debit card. If you do use a prepaid debit card, keep track of how much you have on the card by using a transaction register.
Don’t know what that is? Keep reading.
3. Record all purchases or payments in a transaction register
This sounds simple (and a bit old-fashioned), but it’s actually a very powerful method to stay on top of your finances.
In many ways we’ve become too tech-oriented, and rely too heavily on checking balances online — which we then rarely do.
To avoid overdrafting your account, write down every transaction in your register. You’ve got to inlcude the little stuff because that’s the stuff that comes back and gets you.
If you always know how much money you have (down to the very cent), you will be far less likely to waste it on small purchases.
You can also use a mobile app for budgeting to do this automatically. But if you’re just getting started, it may be helpful to start off tracking your everyday expenses manually before having your phone do it for you.