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Tips to Reduce or Eliminate Overdraft Fees

Banks and credit unions can only charge you overdraft fees on one-time debit card transactions and ATM withdrawals if you “opt in.” Learn more about the opt in choice, and steps you can take to reduce or eliminate overdraft fees on your checking account.

Tips to Reduce or Eliminate Overdraft Fees

Track your balance as carefully as you can to reduce the chance you’ll overdraft. Also, sign up for low balance alerts to let you know when you’re at risk of overdrawing your account. If you have regular electronic transfers, such as rent, mortgage payments or utility bills, make sure you know how much they will be and on what day they occur. Track the checks that you write and note when the funds are deducted from your account, so that you do not accidentally spend money you have already paid from your account. You also need to know when the funds you have deposited become available for your use.

Check your account balance before making a debit card purchase (or ATM withdrawal), and then pause to ask yourself if you any other payments coming up. Just because your account has enough funds when you’re at the checkout counter doesn’t mean you’ll have the funds later when the transaction finally settles. If you’ve recently written checks or made online bill payments that have yet to be deducted from your account, these could draw down your funds in the meantime, leaving you without enough funds to cover your purchase. Debit card overdraft fees can occur on transactions that were first authorized when there were sufficient funds to cover them, but took the account negative when the transaction settled.

Don’t opt-in. You can avoid paying overdraft fees when using your debit card for purchases and at ATMs by not opting-in, or by opting-out if you are currently opted in.  This means that your debit or ATM card may be declined if you don’t have enough money in your account to cover a purchase or ATM withdrawal at the time you attempt a transaction. However, it also means you won’t be charged an overdraft fee for these transactions.

Link your checking account to a savings account. If you overdraw your checking account, your institution will take money from your linked savings account to cover the difference. You may be charged a transfer fee when this happens, but it’s usually much lower than the fee for an overdraft.

Ask your financial institution if you are eligible for a line of credit or linked credit card to cover overdrafts. You may have to pay a fee when the credit line is tapped, and you will owe interest on the amount you borrowed, but this is usually a much cheaper way to cover a brief cash shortfall.

Shop around for a different account. Find out about your bank or credit union’s list of account fees, or ask about them, then compare them with account fees at other banks or credit unions. Assess your own habits and what fees you may face. Consider penalty fees, such as overdraft and non-sufficient funds charges, as well as monthly maintenance, ATM surcharge, and other service fees. When comparing banks or credit unions, you might also want to consider factors such as the hours of operation, locations, access to public transportation, available products and services, and reputation for customer service.


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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