Like many other consumers, you probably use a checking account to manage your money and complete everyday transactions. But, too many purchases can exceed the total amount of funds in the account. If purchases exceed the balance, many banks charge an overdraft fee to cover the transactions. Then, it’s up to you to repay the bank for covering the charges plus the assessed fee. Fortunately, it’s possible to avoid overdraft fees at your bank. Here’s how.
Banking is just one part of your finances. A financial advisor can help you create a financial plan for your needs and goals.
What Are Overdraft Fees?
Overdraft fees are charged when a business debits your account for more money than you have and the bank approves it. In other words, when your purchase amounts exceed the amount of money in your account, the bank charges a fee to complete the transaction. Essentially, the bank will lend you money to cover the cost. Then, you must repay the debited amount plus the overdraft fee. If you’re not careful, overdraft fees can become a significant expense, especially if you overdraft your account often.
Overdraft fees can range from bank to bank. However, online banks tend to have lower overdraft fees than traditional brick-and-mortar financial institutions. According to the 2021 checking account fees survey from Forbes Advisor, overdraft fees hover around $29.50 for traditional banks and credit unions, whereas online bank overdraft fees hover around $16.98.
How to Avoid Overdraft Fees
While overdraft fees are a pesky expense, fortunately, here are five simple ways you can avoid paying them.
Sign Up for Banking Alerts
Many banking institutions allow you to set up alerts for various reasons, such as when your account drops below a certain balance. For example, you could set up a checking account alert to inform you when your checking account balance drops below $200. Once you receive the alert, you can pause spending from that account or transfer more funds into it.
Establishing these banking alerts can help you keep tabs on your current balance to watch your spending habits closely.
Opt into Overdraft Protection
When you choose overdraft protection, your bank automatically transfers money from another bank account to your checking account when you exceed your balance. So you don’t have to worry about covering the excess amount.
Remember, though, linked accounts usually must be from the same institution. Plus, some banks may charge a fee for this service. So, check with your bank to assess how much overdraft protection will cost.
Forgo Automatic Overdrafts
While automatic overdrafts sound similar to overdraft protection, this feature functions slightly differently. When you sign up for a new bank account, your bank allows you to opt into automatic overdrafts. This feature lets your bank cover the transaction on your behalf and charge the overdraft fee.
By opting out, the bank no longer covers your overdrafts automatically. Thus, it’s up to you to monitor your banking activity since the bank might decline charges if you don’t have enough cash to cover them.
Choose a Bank Account That Doesn’t Have Overdraft Fees
Certain banks, like Capital One and Ally Bank, don’t charge overdraft fees. Selecting an account that doesn’t charge these fees may help you save money over time.
Keep Extra Fund in Your Account
Keeping a cash cushion in your bank account can help avoid overdraft fees. So, when you forget about an upcoming charge, you’ll have extra funds to cover it.
It’s easy to forget recurring expenses like subscriptions or utility bills. Keeping extra funds in your account can help you plan for these forgotten expenses.
How to Get an Overdraft Fee Refund
If you get hit with an overdraft fee, it’s possible you won’t have to pay it. You can try contacting your bank via calling customer service, visiting a local bank branch, or starting a chat session online to request a refund. If this is your first offense, the chances of the bank waiving the fee are high.
Staying polite and explaining your situation may increase your chance of success. Also, if you’re a loyal customer, you’ll want to highlight that point in your conversation. If the customer service rep or bank teller shares they don’t have the authority to waive an overdraft fee, request to speak to a member of management.
If all else fails and the bank is unwilling to waive the fee, this might be an excellent time to consider switching banks. When comparing different bank options, look at their overdraft fee policies so you can find an institution that is more suitable for your needs.
More and more banks are reducing or eliminating fees – like overdraft fees– altogether. So, hopefully, soon, the overdraft fee will end its rein. But, until then, you can avoid overdraft fees at your bank by keeping tabs on your funds or adding a cash cushion to your account. If you feel more comfortable working with a bank that doesn’t charge overdraft fees, compare your options. Start by determining how you will use the bank. Then, compare how each institution’s services, costs, interest rates and other features stack up against your needs. Finally, consider comparative reviews to help you pinpoint the most suitable option for your needs.
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