5 Financially Savvy Ways to Avoid Overdraft Fees
With the average overdraft fee coming in at around $35 per transaction, overdrafts are annoying at best and can cause financial chaos at worst. If you happen to overdraft a few times in one day without realizing, you can end up seriously out of pocket.
Overdrafts happen to the best of us. It’s often a smallish purchase that tips us over into the red. Luckily, there are some ways to minimize or avoid overdraft fees – check them out below.
Opt-out of Overdraft Coverage
Yes, that’s right, you don’t have to have overdraft coverage. You can opt-out of your bank’s overdraft coverage program. If you do this, your bank should simply decline ATM withdrawals or one-time debit card transactions if you have insufficient funds in your checking account.
However, be aware that if you opt-out of overdraft protection, your bank may still process other transaction types like check payments and recurring direct debits. In this case, your bank may still charge you an overdraft fee.
If your bank does decline a payment, you may be landed with a non-sufficient funds (NSF) fee which could cost between $27 and $35. Read the small print about your checking account to understand in which situations you might still get charged after opting-out of overdraft coverage.
Use an Overdraft or Budgeting App
Most banks will allow you to set up low balance alerts so you can replenish your bank account, or avoid unnecessary purchases if you’re running out of money. An overdraft app can help you do the same, and more.
For example, Brigit is an overdraft app that alerts you when your balance is low and advances you up to $250 if you need it from time to time. You’d simply pay back the amount borrowed automatically when you get paid.
A budgeting app like Mint can also help you keep track of transactions so you can monitor your balance effectively. Learn more about apps that can help you avoid overdraft fees at OverdraftApps.com.
Ask Your Bank to Waive Overdraft Charges
Another tactic you can try, providing you have a checking account that’s normally in good standing, is to ask your bank to waive an overdraft fee for you. If you seldom overdraw your account, and you happen to speak to a kind and helpful bank rep, they might just say yes!
This blog details an exact script you can use to attempt to get your overdraft fee waived. The key points to note are:
- Be polite, yet firm, in your request.
- Tell the bank rep that you’re a good customer.
- Repeat your request when they say no (which they most likely will, at first).
- As the bank rep for their help.
- If you still get a ‘no’, call back and try your luck with another rep.
Link Your Bank Accounts
Some banks will let you link your checking account to your savings account. If you overdraw your checking account, the required amount can be automatically transferred from your savings account. This method of overdraft protection is generally cheaper than traditional overdraft protection. Santander, for instance, charges $12 as an overdraft protection transfer fee and no additional fees for overdrafts or insufficient funds.
Another option is to set up an overdraft line of credit. This is where you borrow money from your line of credit in the event that you overdraw your checking account. Going back to the Santander example, the transfer charge is the same ($12 per overdraft), but the amount borrowed must be repaid, plus any interest accrued.
Use a Prepaid Debit Card
If you tend to overdraft often, and you’re really worried about fees, one surefire way to avoid overdraft charges is to use a prepaid debit card. You can load money onto a prepaid debit card and you’ll only be able to spend your balance. It’s impossible to overdraw.
Prepaid debit cards don’t require a credit check, so they’re easy to get hold of. But you may have to pay a fee to load money onto the card, per purchase or to withdraw cash from an ATM. To give you an idea of what kind of costs you’re looking at, the Netspend Visa Prepaid card charges $3.95 for cash reload, $2.50 for an ATM withdrawal and $1.50 per purchase.
Avoiding Overdraft Fees – Top Takeaways
You have a number of options that could help you avoid extortionate overdraft fees. These include opting out of overdraft coverage altogether, using an overdraft app, linking your checking and savings account, or using a prepaid debit card.
You will still have to pay some kind of fee if you use one of the options above (except for asking your bank to waive the fee – that’s free)! So be sure to consider your current overdrafting behavior to see which option is likely to be best for you.
If you have a well-stocked savings account that you can link to your checking account, and you don’t tend to overdraft frequently, an overdraft protection transfer program could be a good choice.
All that said, the best way to avoid overdraft fees is to manage your money better. Which, of course, isn’t as easy as it sounds! A budgeting app might be able to help you with this, by giving you a clearer view of your finances and predicting upcoming costs.