Maintaining A Bank Account Should Not Be Expensive: How to Prevent Overdraft Fees
Maintaining a bank account should not be expensive. Depending on your bank and the type of account you have, you could be looking at a monthly fee plus any activity fees posted against your account including overdraft fees. According to Bankrate.com, a consumer financial services company, the average cost of a bank overdraft is a hefty $33.07. One math mistake, one forgotten checkbook entry could send your account balance plummeting further and further into the red as each overdraft fee piles on. You could be looking at $100 in overdraft fees just for buying a cup of coffee when you were short a dollar in your account. And given that banks pull in over $30 billion a year from overdraft fees, don’t expect them to go away anytime soon. The best course of action is to prevent them.
Say No to Overdraft Protection
Overdraft Protection is a service most banks and credit unions offer. With Overdraft Protection, your bank is agreeing to pay any debits to your account regardless of your balance, but for a fee. Since fees for this service vary from bank to bank, make sure you know what you’re in for if you end up in the negative. You could be adding up to $30 to the cost of that cup of coffee. Without this coverage, the transaction at the coffee shop would be declined and you’d have to use another form of payment. Knowing you could be hit with a $33 fee for overdrawing your account could be just what you need to check your balance before you buy.
Pad Your Account Against Overdrafts
If at all possible, consider adding a buffer or cushion of cash to your checking account. This buffer should be equal to your total monthly expenses including rent or mortgage, utilities, gas, and food. This padding will ensure that you never overdraw your account again.
While most people lean toward putting a lump sum of cash like this in an interest-bearing account, if you overdraw your checking account often, avoiding overdraft fees could be considered saving.
If you think you’re going to have to deal with several overdraft fees, you may want to consider taking out a short-term installment loan from an Internet lender.
Link Your Accounts to Avoid Overdrafts
If you don’t want to keep a buffer in your checking account and would prefer to keep that money in a savings account, ask your bank to link the two accounts. This way, if you overdraw your checking account, your bank can automatically cover the overdraft with funds from your savings. There may be a fee for this service, but it will be less than a $33 overdraft fee.
Elect Account Alerts to Prevent Overdrafts
Checking your account balance before every transaction is time-consuming and inconvenient for many people. Sign up for either email or text alerts from your bank that signal when your account goes below a certain level. Visit the website for your bank or credit union to see if they offer a mobile banking app that includes alert settings.
Steer Clear of Overdrafts
While everyone is capable of overdrawing their account now and again, constantly going into the red with your bank is both expensive and unnecessary. If you’re currently overdrawn, consider getting a short-term loan from an Internet lender to cover your account then ask yourself if this is your pattern. If so, take a hard look at your budget to see if you’re managing your money effectively.
Maintaining a bank account can be expensive. Depending on your bank and the type of account you have, you could be looking at a monthly fee as well as any activity fees posted against your account including overdraft fees.
When an overdraft fee hits, it can affect your entire account. If just a few checks or transactions hit while your account is overdrawn, those items may be returned by your bank and you could easily be looking at over $100 in overdraft fees alone just for buying a cup of coffee when you were short a dollar in your checking account. Given that banks pull in over $30 billion a year from overdraft fees, don’t expect them to go away anytime soon. Clearly, the best course of action is to try to prevent them.
About Capital Area Asset Builders
Capital Area Asset Builders (CAAB) is a non-profit organization whose mission is to empower low- and moderate-income residents of the Greater DC Area to take control of their finances, increase their savings, and build wealth for a better future.
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