LearnOverdraft fees are charged when you don’t have enough cash in your account to cover a payment you’ve made, and as part of an overdraft protection service, the bank covers the difference for you. The bank applies a fee for covering the transaction. Essentially, you have to pay back the amount that the bank lent you to cover the difference between what you had in your account and the actual payment total, plus the fees.
Overdraft fees average around $35 for banks, and according to the Financial Health Network , almost half (45%) of overdrafters reported that their most recent overdraft occurred on a transaction of $50 or less.
Understanding how overdraft fees work can help you save money and better manage your finances.
Strategies for avoiding overdraft fees
Sign up for online banking
Online banking is one of the benefits many financial institutions offer. Signing up for online banking allows you to track and watch your checking and savings accounts more closely. You can monitor money coming in and going out, and so more easily avoid incurring overdraft fees.
Track your expenses
You can track your expenses in many ways. You can track them online or by using a written check register to record all of your transactions. It’s a good idea to record all of your deposits and withdrawals. This will help you maintain a running account balance.
Set up balance alerts
Some financial institutions will alert you when your account dips below a specific amount. By establishing account alerts, you’ll know when to transfer or deposit more money into your account to cover any upcoming transactions that could lead to a negative balance.
Keep a cushion in your account
Try to keep a little extra money in your account to cover unforeseen expenses. This can help prevent accidentally overdrafting your account.
Ask your bank for alternatives to overdraft protection
Some banks and credit unions have alternatives to overdraft protection. For example, certain financial institutions will allow you to link your savings account to your checking account. When you overdraw your checking account, funds from your savings account will be transferred, providing similar service as overdraft protection. Keep in mind that there will likely be a fee for this transaction, but it tends to be less than an overdraft fee.
