How to Avoid Overdraft Fees
You can’t spend money you don’t have, right? Unfortunately, that’s not always true, and if you overdraw your bank account, you may be subject to costly overdraft fees. Luckily, you might be able to avoid these fees with a few simple strategies.
What Is an Overdraft Fee?
When you overdraft using a check or debit card, your bank might allow you to spend more money than you actually have in your account. Typically, this comes with a price—the average overdraft fee in 2019 was $33.36.
To make matters worse, if you don’t realize you’re overdrafting your account, you might make multiple purchases, incurring a fee on each one.
And these fees can add up quickly. At $33 a pop, just three small purchases could set you back over $100. If your account remains in a negative balance for an extended number of days, your account could even be closed.
In all, Americans pay billions of dollars in overdraft fees—some $11.45 billion in 2017 alone. Here’s a look at what you could do to try to avoid those costly fees.
Keep Track of Your Accounts
Monitoring how much money is in your checking account regularly is one way to help avoid paying overdraft fees. You might want to keep tabs by reviewing your monthly statement.
If you have a question in between statements, you could log into your account online or through an app to check your balance. You could also check your balance at an ATM using your debit card.
Your bank might give you the option of signing up for automatic alerts that let you know when your account falls below a certain amount. You could choose a specific threshold, and if your account falls below it, you could transfer money from savings or hold off on making any purchases until another paycheck comes in.
Set Up Automatic Payments
Automating your bill payments could be a great way to stay organized and pay your bills on time—you can specify when you want money to leave your account. This action lets you choose a time when you know there will be cash in your account, such as after a paycheck is deposited.
Additionally, an exact date of withdrawal means you might not have to guess when a check to the gas company or your student loan provider will clear. Leaving the guesswork behind might give you a clearer sense of when there will be money in your account.
Link Your Accounts
Your bank may allow you to link your checking account to one of the other bank accounts you hold with them, such as a savings or credit card account, to provide overdraft protection. But it is important to remember that most savings accounts have a limit of 6 withdrawals per month.
When you make a purchase with a check or debit card and there’s not enough money in your account, your bank could then transfer money or credit from your other accounts to cover the difference.
But be cautious if this is an option you’re considering. You might want to check to see if your bank charges a fee for this service. Many do, though the fee is often smaller than overdraft fees. You could expect to pay up to $12.50 per transfer .
If you’re using a credit card to cover your overdraft fees, this could be considered a cash advance. These can sometimes come with high interest rates and fees—sometimes with APRs over 25% and a cash advance fee that is 3% or 5% of your withdrawal.
Be Careful About Where You Use Your Debit Card
You might want to avoid using your debit card to check into a hotel or rent a car. These companies may put a hold on your card equal to, or sometimes greater than, the full amount of your bill.
In this case, money wouldn’t actually be withdrawn from your account, but it also wouldn’t be available for you to use. If you use your debit card to make another purchase and don’t realize that the hold is tying up your money, you may put yourself at risk for overdrafting.
If you’re planning to use your debit card to book a hotel or rent a car, you might want to check company policies in advance. There are often additional requirements if you wish to use a debit card to secure your reservation.
You might also want to avoid using your debit card to make lots of small purchases. These might be harder to keep track of and could add up quickly, making it more difficult for you to know how much money is flowing out of your account. If you lose track of your spending, this too could put you more at risk for overdrafting.
Opt Out of Overdraft Coverage
Opting out of overdraft coverage for debit card purchases and ATM withdrawals could actually keep you from overdrafting. That’s because without overdraft coverage, your charge will simply be declined—no money will be withdrawn from your account, and no fees will be triggered.
Seven in 10 consumers don’t realize that this is an option, and more than half of people incorrectly assume that a declined debit card transaction triggers a fee anyway.
Opting out of these programs does not protect you from fees charged for bounced checks.
What to Do If You Do Overdraft
If you overdraft, you might want to add money to your checking account as quickly as possible. You could check to see if your bank has a deadline to deposit money that might help you avoid an overdraft.
If you get your wires crossed and you are charged a fee—especially if you’ve unknowingly run up a number of overdraft fees—it might be worth calling your bank to see if they’ll waive the fees.
You could explain your situation, and, if you’re in good standing with your bank, they might forgive the fees. It never hurts to ask.
The fees financial institutions charge could be something you scrutinize when you’re looking to open a new account or change accounts.
Instead of an account with overdraft fees as high as $30, you could choose a cash management account like SoFi Money® that charges no account fees (subject to change).
Before committing to opening an account, you might look at all the fees that account charges. You could look for a “schedule of fees” online—if you can’t find it, you could call the financial institution and ask to see one.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC . Neither SoFi nor its affiliates is a bank.