Tag: Overdraft Fees

 

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!)

 

The Real Life Impact of Overdraft Fees

When you’re low on funds and waiting on your direct deposit to hit your bank account, you’re in no place to pay a hefty overdraft fee. Yet, because many big banks charge an average of $35 per overdraft, a measly five dollar charge can easily balloon into $40. Yikes.

If you’ve had to pay overdraft fees, you’re not alone. According to the FDIC, big banks with over one billion dollars in assets collected more than $11.45 billion in overdraft and non-sufficient funds in 2017. 

To get a handle on how these fees can negatively impact your financial situation, we talked to several people who gave us the low-down. Read on to learn more. 

Unfortunate events happen in threes 

When a glitch caused Ruby Escalona’s credit card bill — which was set on autopay — to be paid twice, he was dinged with three $35 overdraft fees from his bank, totaling a whopping $105.

Because Escalona had put four airline tickets on that month’s cycle, to the tune of a few thousand dollars, those overdraft charges put his bank balance in the negative. Escalona called the bank and explained the situation. 

“While the bank still deemed it was ‘my fault’ for the IT issue, the bank did waive two other overdraft fees because of the debacle,” explains Escalona, who is the founder of A Journey We Love. 

When you don’t track your expenses 

When Jerry Brown was in college, he was terrible at managing his money. He was essentially living paycheck to paycheck.

“Since I didn’t keep track of my expenses, I ended up charging my card when I didn’t have the money in my account to cover the expense,” says Brown of Peerless Money Mentor. 

One semester it got so bad that he was dinged with $200 in overdraft fees. That was quite a bit for a struggling college student.

Now, however, he avoids overdraft fees by tracking his expenses (you can do so with a money app), and setting up an emergency fund. 

When three $5 items end up costing $120 

When Riley Adams and his brother were in college, they stopped by a fast food joint on their way to the movies. Adams’ brother initially didn’t want anything to eat, so Adams ordered a single combo meal for himself. Naturally, his brother got hungry and wanted to order something as well. So, they bought another combo meal. Next, the pair had a hankering for dessert. 

Talk about an avalanche of bank fees. Those three five dollar transactions each incurred a $40 overdraft fee, adding up to $120. As it turned out – due to a holiday – Adams’ paycheck hadn’t hit his bank account yet. The direct deposit went through the next day and the bank forgave the overdraft fees.

“We ended up having all the fees waived after contacting the bank and informing them of the situation,” says Adams, who is a 30-year-old financial analyst at Google and founder of Young and the Invested. 

To avoid this from happening again, Adams reached out to his bank to establish an overdraft protection line of credit. Anytime his checking account balance falls below a certain threshold, there’s an automatic transfer from his savings account. 

Note: If you’re a Chime Bank member, you can sign up for direct deposit and get paid up to two days early. 

When rent is due 

When Michael Lacy was living paycheck to paycheck, he wrote a check to cover his rent. But, he forgot about a few purchases he made the day before: filling up his tank with gas, renting a Redbox movie, buying a hoagie, and picking up a few things at the grocery store. The charges were still pending. 

His bank cleared his rent check first, but the other charges were all hit with overdraft fees. The total damage? A hefty $128. He had enough in his account to cover the smaller purchases, so if his bank cleared the transactions in the order they were made, he would’ve only incurred a single $32 overdraft fee for the rent check. 

These days, Lacy takes 30 minutes to plan all his spending at the beginning of each month.

“Every dollar has a destination, whether that’s spending, saving, or investing,” says Lacy, a personal wealth coach and founder of Winning to Wealth

Working for a big bank

When GP (that’s her pen name) worked at a national bank right after college, she witnessed some customers who were regularly racking up overdraft fees, while others would get dinged for an occasional one. 

The worst case? When a regular customer came in to the branch to see what could be done about her overdraft fees. When GP pulled up her account, the balance was negative, and there were tons of overdraft charges.  

“At the time it happened, the bank would process large transactions first — with the thought that it would ensure mortgage and car payments had priority,” says GP, who blogs at Entirely Money

“The only problem with this is that all the subsequent small transactions would then each be hit with an overdraft fee.”

In total, the overdraft fees that hit this customer’s account added up to over $200. As the bank manager would only give a one-time courtesy credit for a few of the fees, the customer was still stuck with more than $100 in overdraft fees. 

A cluster of ill-timed events

When an overpayment and a direct deposit issue happened at the same time, Jason Vitug’s funds dropped lower than the automatic bill payment that hit the account. 

What’s more, because his bank overdrew his account with the largest amount first, it caused the three smaller payments to be overdrawn. He ended up paying $120 for four overdraft fees. 

“Basically, the bank stated I overdrew my account four times in one day, even though three of those withdrawals would’ve been covered,” says Vitug, founder of Phroogal

To avoid this from happening, Vitug suggests attaching a savings account or line of credit for overdraft protection. Or just stop banking with that bank. 

“Simply choose a bank that won’t overdraft your account, and just refuse payment,” says Vitug. 

To avoid these headache-inducing, frustrating scenarios, avoid bank fees altogether. FYI: Chime never charges fees of any kind. Never ever. 

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