This article is sponsored by Brigit. All opinions are my own.
There’s nothing more frustrating than overdrawing your checking account.
Just when finances are tight, you get hit with more fees from your bank. And if you don’t catch it right away, several charges may come through and you’ll have multiple fees that pile up, leaving you with a big hole to dig your way out of.
The average overdraft fee is $35. That may not sound like a large amount of money, but that is the fee per transaction when your account is overdrawn. You may have five or more transactions before you realize it, and then you’re stuck with significant fees, plus the need to get your account out of the red.
What can make overdraft fees even more frustrating and annoying is the fact that they are applied even to small charges. A few years ago, I wasn’t paying close enough attention to my account and I used my debit card for several small purchases within a two-day period. I had multiple $35 fees for charges that were in the $2 – $10 range. The good news is, this experience led me to be much more careful going forward.
In this article, we’ll look at 10 practical tips that can help you to avoid overdraft fees and save yourself some money and frustration.
How to Prevent Overdraft Fees
1. Opt Out of Overdraft Protection
Most banks offer some sort of courtesy overdraft protection (each bank calls it something different) that sounds great on the surface, but the fees are usually very significant. These types of overdraft protection will allow your payments to go through, and then a fee will be assessed to your account for each charge with insufficient funds.
Legally, banks cannot give you this type of overdraft protection unless you opt in. By default, one-time payments will not go through if your account has insufficient funds. For example, if you’re trying to purchase a pizza for $12 with your debit card and you only have $1.63 in your account, the charge will be declined and you will not be hit with any overdraft fees. But if you have overdraft protection set up, the transaction will be approved, your account will go into a negative balance, and you’ll be charged a fee.
Having your purchase declined may cause some embarrassment, but it will save you a lot in fees. The scenario above applies to one-time purchases and transactions. Recurring payments, like your bills, may be processed with or without overdraft protection in place.
2. Link a Savings Account to Your Checking Account
A much better way to protect yourself is to link a savings account to your checking account. Your bank will probably offer this as another option for overdraft protection. If your checking account becomes overdrawn, the money will be automatically pulled from your savings account.
This will prevent your purchases and transactions from being declined. There are usually fees associated with this, but the fees are typically less than the fees associated with the courtesy overdraft protection that was mentioned in the first point.
Of course, in order for this to work, you’ll need to keep some money in your savings account so it is accessible when you need it.
Even with this type of protection set up, you should still try to avoid overdrawing your checking account because even the smaller fees will add up.
3. Use Brigit
Brigit is on a mission to help Americans avoid overdraft fees and provide a better alternative than high-interest payday loans. According to Brigit, banks made $34 billion in 2017 from overdraft fees alone, and payday lenders make $9 billion in interest each year.
- Free budgeting tools to help you manage your money better (and easier).
- Real-time alerts to help you keep your balance in check
- Overdraft predictions to help you know if you’re at risk of overspending and being charged an overdraft fee.
Everything mentioned above is available for free from Brigit. Optionally, they also offer a $9.99 per month plan with additional features like:
- Financial tracking tools to understand your earning and spending (coming soon).
- Up to $250 when you need it to cover your bills.
- 20-second approval.
- No interest, No late fees. No hidden fees.
- Free extensions and flexible repayment at no cost.
- Automated Protection: Brigit offers an opt-in feature that automatically deposits money into your account if you’re at risk of an overdraft
With Brigit you can get money in your account within minutes, helping you to avoid overdrafts. For more information, see these helpful comparisons:
4. Monitor Your Accounts Closely
Probably the best way to prevent overdraft fees is to keep an eye on your account, know your balance, and know what will be coming in and going out.
There are several different ways that you can monitor your account, including:
Review Your Account Statements Each Month – Look over the transactions and be sure that everything is accurate. If you notice any issues, contact your bank right away.
Keep Your Check Register Up-to-Date – Record everything that comes in or out of your checking account, including checks, debit card purchases, and ATM withdrawals. Record them as soon as they happen, don’t wait for them to hit your account.
Use Your Bank’s Mobile App – Most banks have mobile apps that make it easy to check your balance and the details of your account at any time.
Set Up Low Balance Alerts – Your bank probably offers the capability to send you text or email alerts if your balance drops below a certain level. These alerts can help you to know when you need to quickly get some money into the account in order to prevent any problems.
5. Don’t Use Debit Cards to Purchase Gas, Rental Cars, or Hotel Rooms
Gas stations, rental car companies, and hotels will place a hold on your account when you make a purchase. Although you are not technically being charged for this amount, the hold will impact your available balance.
In some cases, the amount that’s held can be much larger than the actual purchase. A gas station may place a hold of $100 even though you’re only purchasing $20 of gas.
The hold can take a day or more before it goes away, which can lead to an overdrawn account if your available balance isn’t enough to cover other charges that are coming through.
6. Cushion Your Account
Avoiding overdraft fees is simple if you have enough money in the account that you are not in danger of bouncing checks or making debit card purchases that exceed your available balance.
If you’re able to build up your balance and maintain a higher average balance, worrying about overdrawing your account could be a thing of the past.
Adding some cushion to your account is easy advice to give, but it can be a lot more tricky to actually build up your checking account balance when you are living paycheck-to-paycheck and the bills seem to be larger than your income.
In these situations, there are a few simple ways to get some extra money that you can use to start to pad your account:
Swagbucks – Sign up for Swagbucks ($5 bonus just for signing up) and you can earn money for things like taking online surveys, watching videos, installing apps, searching the internet, and more. With just a small effort in your spare time you can start to earn some money that can be used to provide some cushion in your checking account. And if you like Swagbucks, you may also be interested in MyPoints and InboxDollars.
Survey Junkie – Survey Junkie is one of the best websites for making money from simple online surveys. It’s easy work, requires no specific experience, and you can start earning some extra money in your spare time right away.
Donate Plasma – You may be surprised to hear that you can make $300 – $400 per month by donating plasma at a local center. Just a few trips to the donation center will help you to earn enough to add a little bit of cushion to your checking account.
7. Create a Budget (and Stick to It)
One of the common causes of overdrawn accounts is a lack of understanding about where your money is going. You may have underestimated how much money you needed for bills or lost track of how much you’ve been spending.
A budget can help you to get your finances organized, and each dollar will have a purpose. If you are creating and sticking to a budget, you’ll be able to have confidence in knowing where your money is going and how much you will need each month.
If you’re new to budgeting or if you don’t like the idea of sitting down and creating a budget, it can be a lot easier if you start with a pre-made template. A budget template will have all of the necessary categories listed, so you’ll just need to fill in the details for your own situation. If you’d like to get access to our free budget template (PDF and Google Docs spreadsheet), just enter your email address below.
8. Use Auto Payments
Many of your monthly recurring bills will come with the option for automatic payments. If you take advantage of auto payments, you will be able to know exactly which day each month the payments will be made. If you’re paying by check, you don’t know exactly when that check will be cashed or when it will clear your account.
Keeping tabs of your checking account and your balance can be much easier when you know exactly when each payment will be taken from your account. You won’t overdraw your account because a check clears faster than you expected.
9. Deal with Overdrafts Quickly When They Happen
If you do accidentally overdraw your account, be sure to act quickly and address it as soon as possible. Overdraft fees can occur for every single transaction that is processed while your account has insufficient funds. You may spend $5 somewhere and get hit with a $35 fee from the bank. Do that a few times, even with small purchases, and the cost of the fees will really add up.
You’ll want to immediately deposit enough money to cover the transactions that have pushed the account into the negative, plus any fees, and plus enough to cover any upcoming transactions.
Get in touch with your bank as soon as possible. The longer you wait, the more transactions that will come through while your account is in a negative balance, only compounding the problem.
10. Get Your Overdraft Fees Waived
It can also be helpful to ask your bank to waive any overdraft fees that you’ve been charged. You’ll have a stronger case if you’ve acted quickly to get more money in your account and/or to stop any upcoming transactions that would have caused further issues with the account.
And of course, it also helps if you have a good history with the bank (if you’ve been a customer for a while and not have issues with overdrafts in the past).
Ramit Sethi offers a short script that you can use when you call your bank in order to get your fees waived.
With the help of these tips, you can stop worrying about overdrafts and the related bank fees.