5 Easy Tactics to Avoid Costly Overdraft Fees
Not too long ago, I received a worrying message from my bank saying that my account had a negative balance, which, of course, resulted in an overdraft fee. Has this ever happened to you? It’s surprising how often this occurs, even when we think we have our finances in check. According to the Consumer Financial Protection Bureau, Americans pay around $17 billion in overdraft and insufficient funds fees every year. Let’s explore five ways to avoid those annoying overdraft charges.
**Understanding Overdraft Fees**
An overdraft fee is charged when your bank allows you to withdraw more money than what’s in your checking account, whether through an ATM, debit card, or check. It’s a fee for covering the shortfall. Some banks even add a daily fee ranging from $2 to $5 until your balance is positive again. Different banks have varying fees. For example:
– Chase: $34, up to $102 per day
– Bank of America: $35, up to $140 per day
– Citibank: $34, up to $136 per day
– Wells Fargo: $35, up to $105 per day
– HSBC: $35, up to $105 per day
Fortunately, these fees can often be avoided with some smart strategies. Knowing how to steer clear of overdraft fees can save you a lot of money over time.
**Avoiding Overdraft Fees**
1. **Set Up Online Alerts**
Many banks offer alerts that notify you when your checking account balance falls below a certain amount, like $50 or $100. Regularly checking your balance through online banking, mobile apps, phone calls, ATMs, or in-person visits can help you keep track of your finances better over time.
2. **Go Cash-Only**
Using only the cash you have on hand is a great way to avoid overdraft fees. You can’t spend more cash than what you have in your wallet, which saves you the hassle of balancing a checkbook and helps you keep an eye on your spending.
3. **Decline Overdraft Protection**
Even though overdraft protection might sound helpful, remember that it involves multiple transactions covered by your bank in exchange for a fee for each transaction. You can opt out of this service. Ask your bank not to allow transactions that exceed your account limit, resulting in a decline when your balance is low.
4. **Adopt Budgeting**
Having a budget can help stop you from overdrawing your account. A thought-out budget means you don’t have to stress about your financial situation. It’s a good idea to have a $1,000 buffer for those unexpected expenses.
5. **Maintain a Buffer Balance**
Keep some extra money in your account for unforeseen or forgotten expenses. Those recurring subscriptions or monthly payments you might overlook can lead to an overdraft. So, it’s wise to maintain a buffer beyond your usual monthly expenses.
If an overdraft happens due to a one-time mistake, reach out to your bank and ask if they can remove the fee. Many banks are willing to do this, especially if you’re generally responsible with your finances.
**The Takeaway**
Everyone wants to hold onto their hard-earned cash rather than lose it to overdraft fees. By following the strategies mentioned above, you can avoid these unnecessary charges. Regularly checking your financial situation and spending habits, along with effective budgeting, will help you stay out of the red. Take proactive steps like choosing banks without overdraft fees, setting up alerts, and using cash to gain full control over your money. After experiencing an overdraft fee myself, I’ve taken it as a lesson to make smarter financial decisions.
What techniques do you use to avoid overdraft fees?