Tag: Overdraft

 

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!)

 

Overdraft Protection: What to Know & How to Avoid Fees

Have you ever swiped your debit card and worried that you might not have enough money in your bank account? If this sounds like you, you might want to consider signing up for overdraft protection to save you from such a predicament.

On the surface, overdraft protection may seem like the perfect solution, but the details and reality of the optional banking services leave many banking customers wondering if it’s actually worth it. Explore our handy guide to learn all about overdraft protection, and overdraft fees, and how you can clean up your finances to avoid them altogether.

What is overdraft protection and how does it work?

Overdraft protection is a safety net that helps you avoid overdrawing your account. In short, it’s a type of financial protection that will help float you money if you have insufficient funds. So if If you swipe your debit card or try to get cash out of an ATM, you may be able to do so even if you technically don’t have enough money in your account. It does this by pulling in money or credit from the account that you linked to your checking account when you set up overdraft protection with your bank.

Generally, if you make a purchase with your debit card and don’t have enough funds in your checking account, the purchase won’t go through. This is typically called an overdraft, and signifies that your account balance has dipped below zero and into negative territory. This situation can be embarrassing for you, as well as awkward for the person behind the cash register. It also can be highly inconvenient if you need whatever you’re purchasing now.

This is where overdraft protection comes in. Overdraft protection essentially protects you from overdrafting. So, instead of getting your card declined and leading to an uncomfortable situation, your card will go through like normal – even if you don’t have enough money in your account to cover that purchase.

But overdraft protection comes at a price, specifically, in the form of overdraft protection transfer which can add up quick. So, while overdraft protection, on the surface, can seem like a great solution to a temporary problem, it’s not always all it’s cracked up to be.

If you are interested in this protection, you’ll want to talk to your bank and enroll in the program. Additionally, it’s important to know all the upfront costs such as overdraft fees, credit line limits, etc.

Pros & Cons of overdraft protection

The main pro of overdraft protection is convenience. Overdraft protection allows purchases to go through, even if you don’t have enough funds in your checking account. This can save you embarrassment, inconvenience and time. You don’t have to deal with your card getting declined in public or being unable to access cash when you really need it.

However good overdraft protection seems in theory, it can cost you in the long run. The fees can vary from bank to bank and your financial institution decide what to charge, and you’re usually hit with more than one charge. You can continue getting hit with overdraft fees if your account is overdrawn for an extended period of time. These new fees are called extended overdraft fees and some are charged daily.

We found that consumers can get hit with four to six overdraft fees per day. In some cases, that number can be as high as 12. What’s more, : C consumers who frequently overdraft end up paying more fees than those who do not opt into overdraft protection. In fact, The Consumer Financial Protection Bureau (CFPB) found that frequent overdrafters who opt into this coverage pay nearly $450 more in fees.

On top of that, if you accrue enough overdraft fees and stay in the negative, you’re at risk of account closure. Having your account closed by your bank is a major inconvenience. Just think about all the bills that are connected to that account, or not having access to your money for a period of time.

All of these are major cons of overdraft protection and should be considered carefully.

How Do You Use Overdraft Protection?

If you want to use overdraft protection, first make sure it’s something you’re signed up for. As noted above, your bank must get consent from you first to enroll you in overdraft protection.

Once you are enrolled, see if you have to link another account or a credit card to complete the process. Each bank may have different policies and procedures.

When it’s set up, overdraft protection will be in place if you overdraw your account. But remember: The hope is that you never have to use it! If you do, this means you’ve run out of money in your account, which is no fun.

Overdraft Fees Are Costing Americans Big Time

Overdraft fees – by and large – are a big business for many banks. In fact, the average overdraft fee is around $35. In 2017, consumers paid 34.3 billion dollars in overdraft fees in 2017, a number which has been on the rise since the Great Recession.

Even credit unions, which are often thought of as more community-minded and consumer friendly have jumped on the overdraft fee bandwagon. Overdraft fees at credit unions have nearly doubled from $15 in 2000 to $29 in 2017.

In short, overdraft fees are the bread and butter for many financial institutions. They give banks a way to make money off consumers by positioning overdraft protection as a useful service.

Does Overdraft Protection Hurt Your Credit?

As noted above, in some cases your bank may offer you a line of credit or link your overdraft protection to a credit card. If linked to a credit card, you could end up paying more. Why? Because some card issuers might consider the overdraft a form of “cash advance,” which has its own set of fees, not to mention higher interest rates.

How Do You Avoid Overdraft Protection?

Before 2010, many consumers were unaware that they were being “opted in” to overdraft protection programs. However, starting in 2010, federal regulations shifted and required that banks get consumers’ consent to opt into overdraft protection.

To make things simple, however, you can avoid overdraft protection by not signing up for it with your bank. If you’re currently enrolled in this service, you can cancel it. This way, if you don’t have enough in your account, your purchase or transaction will get declined. While you won’t be able to make the purchase, you also won’t be hit you with an overdraft fee.

Another option is to open a bank account at Chime, which has no overdraft fees.

Lastly, to avoid this problem altogether, keep a buffer of money in your checking account. This can help you avoid dipping into the negative. Check your account balances daily and monitor your bill due dates and auto-drafts. This way you’ll know when money is coming out of your account.

Final word

There are certainly pros and cons with overdraft protection.

It can be convenient, yet costly. It can save you embarrassment and time, but also take a bite out of your hard-earned money. So, weigh these pros and cons carefully.

Final tip: If you never want to worry about an overdraft fee again, consider switching to a bank that offers fee-free overdraft.

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