How to Finally Stop Overdrafting (And Avoid Fees!)

Raise your hand if this sounds familiar: You head to dinner with friends and charge $30 to your debit card

But little do you know that a bunch of bills were auto-drafted from your checking account this morning — and you only have $25 in your bank account

Yikes. You’ve just overdrafted

Most banks charge an average fee of $35 for this tiny mistake, costing Americans $34 billion in 2017. (Here’s more on how overdraft fees work.)

If you’re wondering how to avoid overdraft fees, keep reading. We’ll reveal 5 tips for nixing this costly habit — followed by how to join a bank that doesn’t charge any overdraft fees, ever. 

1. Monitor your balance

When it comes to debit card purchases (the most frequent cause of overdrafts), the median overdraft-causing transaction amount is just $24, according to the Consumer Financial Protection Bureau

Since it’s pretty easy to spend $24, one of the best ways to avoid overdrafting is to get intimately acquainted with your balance. Download your bank’s mobile app, and set a reminder to check it every Friday morning — that way, you’ll know exactly what you can spend over the weekend and following week. 

Alternatively, you can connect your bank account to an AI-powered budgeting app like Charlie, or you can try a no-frills, straight-to-the-point app like Daily Budget.

If you’d prefer to go super low tech, ask your bank for a checkbook register. 

“Each time you authorize an item or debit from the account, record it in the ledger and maintain a running balance,” suggests Adam Marlowe, the principal market development officer for Georgia’s Own Credit Union

Call it old school, but forcing yourself to write out each expenditure is a good way to stick to your budget and (hopefully) avoid another overdraft.

 2. Cancel overdraft protection

While removing the protection to prevent overdrafting may sound counterintuitive, overdraft protection can actually be detrimental.

Despite the fact more than two-thirds of overdrafters would rather have their purchases declined than pay a fee, many consumers don’t know they can opt out of this so-called benefit, according to Pew. If, up until a few seconds ago, you were one of them, call your bank ASAP — or just switch to a bank that doesn’t charge fees.

Here’s why you should do this. When you sign up for this “protection,” your bank will “let” you overdraw your account — and then smack you with an average fee of $12.30. (One exception: If your bank draws from a linked savings account to cover your purchase, the charge may be lower or even free.

How kind, right? Although $12 is less than a $35 overdraft fee, we think no fees are best of all. 

“Legally, banks must allow you to opt out of overdraft protection and simply get denied for the purchase when you don’t have enough money,” Michael Outar, founder of Savebly, explains. 

“That will prevent you from paying any ridiculous fees.”

3. Create account alerts

Your phone notifies you whenever someone follows you on Instagram, and whenever your favorite makeup brand goes on sale… why not when your bank account dips to risky levels? 

To keep herself from overdrafting, Marissa Sanders of Simple Money Mom signed up to get an automatic notification if her balance dips to $100 or less.  

Setting up a $100 alert will give you time to institute a spending freeze, as well as check for recurring charges that will be debited before your next paycheck.

“If you know in advance that you are having certain bills drafted, contact the creditor and ask them to delay payment for a few days,” suggests Roslyn Lash, an accredited financial counselor. 

While your utility company, for example, may charge a late fee, Lash says it’ll usually be “considerably less” than what your bank would charge for overdrafting. 

And, here’s a tip: if you often find yourself squeezed between paychecks, consider getting paid early with Chime.

4. Avoid putting holds on your debit card

Got a vacation coming up? You might want to pack your credit card rather than your debit card. 

As David Bakke of Money Crashers explains: “Try to not use your debit card when renting a car, staying at a hotel, or purchasing gas. Oftentimes, with these types of purchases, there’s a hold placed on your account for more than the actual purchase amount.” 

Lightbulb moment, right? When you check into a hotel, it puts a “hold” — often to the tune of several hundred dollars — on your card. Worse, with debit cards, the hold sometimes doesn’t appear as debited from your account (and could thus make you think you have more to spend than you do). 

The best solution, of course, is to pay with a credit card. But if you only have a debit card, enter your PIN. That will process your transaction as debit rather than credit, forcing the money to come straight out of your account. Just make sure you have enough to comfortably cover the entire hold, as it could take several days after check-out before it is returned.   

5. Get overdraft fees waived

Fine, fine, so this isn’t a preventative measure — but if you hit a rough patch and accidentally overdraw your account, it’s important to know how to get overdraft fees waived. 

The good news: It’s easier than you might think. 

“When overdrafts do happen, we encourage our members to contact us if they have fallen on bad times and need a little help,” says Marlowe of Georgia’s Own Credit Union. 

“Financial institutions will often refund the fees as long as it is not a normal occurrence. After all, everyone makes mistakes.” 

As soon as you spot an overdraft fee charged to your account, call your bank. If it’s your first time in a while (or if you mention switching banks), the agent may be sympathetic to your cause. 

Are there banks without overdraft fees? 

While it’s always a good idea to take better control of your finances, wouldn’t it be nice to find a bank that had your back when you slipped up? 

As Lash, the financial counselor notes, “It’s difficult to find a bank that doesn’t have overdraft fees, but if you can, by all means do so.” 

Luckily, if you’re reading this, the hard part is over; you’ve already found that bank. At Chime, we’re proud to have fee-free overdrafts. (And fee-free everything else, too!)

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