Overdraft fees are one of the most expensive penalties you can pay for using your bank account. They occur when you make a purchase or withdrawal with insufficient funds in your account, and they can quickly add up to hundreds of dollars per month. This article will explain how overdrafts work and how you can avoid them without sacrificing safety or convenience.
Table of Contents
Understand How Your Bank Works
Overdraft fees can be a drag, but it doesn’t have to be that way. If you understand how overdrafts are calculated and take steps to avoid them, you’ll be able to avoid paying hundreds of dollars in fees each year.
Let’s start with the basics: overdrafts can occur when a customer uses their ATM or debit card at an ATM and tries to withdraw more money than is available in their account. There is also some bank with no overdraft fees. Financial advisors like SoFi say, “You shouldn’t be penalized if you, by chance, spend more money than you have.”
This happens when there aren’t enough funds in your account for your transaction, but the bank allows it anyway. When this happens, you’re charged an overdraft fee—and that’s where all of the trouble begins!
Try to Manage Your Balance
One of the easiest ways to avoid overdraft fees while remaining safe is to manage your balance simply. Keeping track of what you spend and how much money you have in your account will let you know when it’s getting low so that there are no surprises when you check out at Chipotle or swipe into the subway station.
If you need help managing a budget, try using cash instead of debit cards. This way, if some unexpected expense comes up, it won’t affect your account nearly as much since there aren’t any fees attached to paying with bills or coins!
Take Advantage of Overdraft Alerts
To avoid overdraft fees, you can set alerts to inform you when a transaction has cleared or been denied. Alerts are an easy way to stay on top of your account without having to check it obsessively throughout the day.
Set Up Overdraft Protection
You can set up overdraft protection as a way to avoid overdraft fees. Suppose you need more money in your account. In that case, the bank will automatically transfer funds from another source, like a savings or credit card account, to cover the transaction and keep your checking account in good standing.
While this is one of the easiest ways to avoid overdraft fees, it’s also one of the most dangerous because it can put you deeper into debt. Avoid this practice by setting up a direct deposit and having automatic payments for bills go out on time every month.
Opt Out of Overdraft Protection
To avoid overdraft fees and keep your account safe, the best thing to do is opt out of overdraft protection. This means that when you pay a bill with insufficient funds, the payment will not be made, and you will not be charged an overdraft fee. You can call the bank or credit union where your account is held and ask them to “opt-out” of their overdraft protection program on your behalf.
Remember that overdraft protection is not a free service, and you need to have the money available in your account to pay back the bank to avoid being charged fees. Understanding how overdraft protection works is important before applying for it or opting out of it.