An overdraft fee is a penalty for taking too much money out of your account. If you charge more than your account holds, your bank will provide payment, but then charge you for overdrawing the account. Most of the time over drafting is just the result of losing track and accidentally charging a little more to your debit account than is available. No one needs the stress and added cost of overdraft fees, so here’s how to avoid them:
Use an Account with ‘No Overdraft Fees’
Several types of checking accounts are designed to help you avoid unnecessary fees. Try looking for an account with “no overdraft fees’ as one of the included policies. This means that you will not immediately be charged a fee if you pay debit slightly beyond your account’s reserves. Instead, the bank will cover the charge and send an alert. As long as your balance is in-the-black at the end of the month, you can avoid these small accident fees.
Use a Backup Account with ‘Overdraft Protection’
Overdraft protection is another way to deal with the issue. Instead of a margin without fees, you can set up a back-up account. An overdraft protection setting will then draw money from the second account to cover any accidental overdraft from your checking account. You can connect your paired savings account, for example, so that your tucked-away funds serve as protection from accidental overdraft in any given month.
Switch Account Settings to Disallow Overdrafts
Some bank accounts allow you to turn off the possibility of overdrafting. This is a great setting to prevent the account-holder from being able to draw too much money from their checking account. Instead, the over-the-line charge will be declined at the time of purchase. Disallowing overdrafts is often used, for example, for allowance accounts where a young person is learning to spend within a budget and use a digital bank account.
Keep Notes and Maintain a Cushion Balance
You can always go old-school and “balance your checkbook” by keeping notes on your income and spending. Keep track of charges and then reinforce your notes by checking your account transaction records. With attention and care, you can avoid over-charging your checking account – with or without other protections in place.
Set Up a Bank Alert When Your Account is Low
Many banks are happy to provide you with low-balance alerts so that you can avoid the accident of overdrafting your account. A low-balance alert simply sends a text or email when your account reaches a certain number. You can set your low-balance alert to whatever feels like a safe margin for you, though $25 is a common default.
Call Your Bank When an Overdraft Occurs
Finally, you can sometimes avoid overdraft fees that have already been charged by calling your bank. Overdraft fees are there to discourage regular overdrafting, as this is an inconvenience and minor expense for the bank itself. However, if you quickly correct the balance and call the bank to explain, your bank will often be able to waive the fee as there is no remaining outstanding balance.