Overdraft fees are, at their core, scary. As a median, most banks charge $35 to spend or withdraw more money than your checking account has—which often only exacerbates the problem faced by the client. Banks, however, thrive on these fees. Checking accounts are not inherently profitable for banks, and 61% of checking revenue is directly form overdraft fees. As such, the banks and other financial institutions that offer checking accounts will not be willing to remove or reduce their overdraft fees. Avoiding these unexpected and seemingly impossible to scape charges can be a major challenge, but is definitely possible. Use these methods to avoid losing unnecessary money to your bank, and shaping up your checking finances.
Overdraft Coverage
Overdraft coverage is a fairly vague name. It offers no protection from overdraft fees, but rather allows them to happen. With overdraft coverage, you can still make purchases with your debit card or checkbook regardless of the fund in your checking account. However, if you do not have sufficient funds, a charge will be applied to your account. These overdraft fees can accumulate interest over time, which bears a very close resemblance to the credit card accounts that many debit or check account users are trying to avoid. In 2010, the Federal Reserve prohibited automatic overdraft coverage. To get overdraft coverage, customers are required to opt in to the coverage. While this eliminates the possibility of overdraft fees, it makes the possibility of checks bouncing or debit card purchases declining a very real threat. If this seems like less of a problem to you than frequent overdraft fees, then opt out of the overdraft coverage offered by your bank. However, even if you opt out of this service most paper checks and almost all automatic bill payments will pass through your account and incur any overdraft fees regardless of your funds—these are extremely hard to get rid of.
Find a Feeless Program
Opting out of overdraft protection can be a pain and a hassle, but many checking accounts take much pride in charging no overdraft fees. Mobile banking apps, or the official apps for banks and other institutions, frequently offer these programs. Here are some of our favorites:
- Moven
- Simple
- Bank of America
- Capital One
The majority of these services will deny any transaction that would overdraft your account. Though it’s a rough alternative to the fee, many choose to take it. However, these accounts rarely gain interest and are chiefly available online, so if you prefer brick-and-mortar banking this way of avoiding overdraft fees may not be the choice for you.
Use Linked Accounts
As an alternative to overdraft protection, some banks permit their clients to link a checking account to a different bank account. This way, overdraft fees are avoided by transferring funds from your primary account once your checking account balance is lowered. However, this may only replace your overdraft fee with a transfer fee. Other institutions or programs permit the client to link the checking account to a credit card rather than a savings account, but this route may result in interest charges in combination with the transfer fee (unless, of course, you are well on top of your credit card payments).
Balance Alerts
As with most financials, when it comes to bank accounts, knowledge is power. Knowing before you make an overdrafting purchase that your balance is low can save you the fees, and you can transfer funds from another account (which will run a much lower fee) or skip the impulse buy or card use for cash or saving for another day. Waiting for that next paycheck to make a paycheck will often save a great amount of money—and with median fees of $35, overdrafting can be a real killer. If your bank offers mobile or online banking, it almost always offers alongside it an overdraft alert system that will send you a text or email when your checking account balance falls below a certain threshold. This threshold is defined by you, the client, so that you receive neither unnecessary alerts nor find out too late that you have overdrafted your account. For an even closer finger on the pulse of your financials, opt in to the daily email statement that most banks offer. This will give you a very clear idea of how much you need to limit your spending to avoid overdraft fees.
The average consumer generates over $250 each year in overdraft fees. The people who can least afford these fees (and as such, those who receive them the most) are often those who are hit the hardest. This serious budget strain is most commonly found among young adults, who 4x more often receive ten or more overdraft fees in a given year. However, using our tips and keeping an extra close eye on your finances, you can almost entirely eliminate overdraft fees from your finances to free up extra space in your budget.