No one likes paying overdraft fees. Banks charged these fees to customers who they’ve had to bail out for spending more money than they have in their accounts. Banks have also somewhat taken advantage of this relationship and piled on the fees once things go in the negative. It’s not pretty. But this ugliness can be avoided. First, by never spending more than you have (duh!). But also by putting in controls to help protect yourself from the occasional slip up.
Opt Out – Beginning today, Bank of America and Chase bank allow you to opt out of their debit card overdraft programs. By opting out, instead of incurring a $35 or $40 fee, you’ll be stopped at the register next time you try and use your debit card and don’t have the funds. They’ve also made some changes to the way they tack on the additional overdraft fees once the account is already in the negative. Nice changes for us dumb consumers.
Get Overdraft Protection – Some banks will let you connect a second account (savings or credit) to your checking account. This is called Overdraft Protection. When you spend more than you have, funds are transferred to cover the difference. Fees are usually less with this type of protection vs the normal overdraft program, which uses the banks borrowed funds.
Create Alerts – Most banks now offer a low-balance alert feature. When your balance reaches a designated dollar amount $100 for instance, you are alerted by text message or email. Money management software also features this at a more advanced level, with predictive type alerts. Your past spending trend and expected deposits are used to predict when your money is likely to run out.
Go Cash Only – This isn’t for everyone. But if you have a problem constantly spending more money than you have in your bank, you likely need a stronger control. Dump the debt card and roll with cash only. Spending with cash only has been known to help some curb their spending as well.
Use a Different Bank – The big banks are convenient for their locations. There’s nothing wrong with using these banks for some of your banking: making check deposits comes to mind. Still, you can find a great bank that will give you a debit card and won’t charge you overdraft fees. Capital One 360′s Checking account is my spending account. They don’t charge overdraft fees. They simply start charging you daily interest on the negative balance. This is peanuts compared to a $35 hit for each overdraft.
Have you ever been hit with an overdraft fee? How did you change your behavior? Do you have some other tips to avoid fees?
Photo by: Andrea F