Overdraft fees are charges that banks levy when you spend more than the amount in your account. Generally, when you make a purchase or withdraw money from an ATM and if it exceeds your account balance, the bank can either decline the transaction or allow it to go through and charge you a fee to meet the shortfall.
If you continue to overdraw more than your account, the bank can charge multiple overdraft fees in a single day. This can be $0 to $40 depending on banking rules.
Hence, overdraft charges can be frustrating for customers. Not only does this cost you more, but it can also ruin your entire budget. Therefore, it is best to stay aware of your account balance and take steps to avoid overdraft fees.
There are many options available at the bank, such as setting up a low balance alert, signing up for overdraft protection, or using only cash for purchases instead of your debit card/account.
How to Avoid Overdraft Fees?
There are many ways, but here we will mention the top 5 tips to avoid overdraft charges:
- Monitor your Account Balance: Always monitor your account balance regularly and keep a record of all your transactions to avoid spending more than you have.
- Sign up for Overdraft Protection: Consider signing up for overdraft protection with your bank, which allows you to link your two accounts or credit card that can cover the shortfall in case of an overdraft.
- Set up Low Balance Alerts: Almost all banks provide low-balance alerts that notify you when your account balance falls below a certain threshold. It can help you avoid overdraft fees by reminding you to deposit more money into your account.
- Opt-out of Overdraft Protection: You can also opt out of overdraft protection, which means your debit card will be declined if you try to make a purchase that exceeds your account balance. This can help you avoid overspending and incurring overdraft fees.
- Use cash: To avoid overdraft fees, consider using cash for purchases instead of your debit card.
Best way to avoid Overdraft fees
Use cash instead of your debit card to avoid overdraft fees. This can be a good option if you are prone to excessive spending or have difficulty keeping track of your account balances. When you use cash, you can only spend what you have so you won’t have to worry about overdrawing your account.
Note: Remember, overdraft fees can add up fast and be costly, so it’s important to take steps to avoid them.
What is an Overdraft fee?
If you are covered by your bank’s automatic overdraft service, the bank may cover the fee and it will still be paid. Your account balance will drop below zero and you will have a negative balance representing the amount you now owe to the bank.
Let’s say you have $100 in your account, but you need $125 to pay for an unexpected expense. You are $25 short, but the bank loans you $25 and the payment is made. After that, the bank will charge an overdraft fee of $30. Now the $35 fee and $25 overdraft will show you with a balance in your account – $60.
How much does the Overdraft fee cost?
Overdraft fees have steadily increased over the years. While checking account and ATM fees vary from bank to bank, the average overdraft fee is $33.58, according to Bankrate data. This can add up to a significant amount if you frequently overdraft your account.
People who are more financially disadvantaged are more vulnerable to overdraft fees. According to the Consumer Financial Protection Bureau, a large portion (70%) of overdrafts are charged to consumers with low average account balances, averaging between $239 and $433.
Overdraft fees vary from bank to bank, but here are some popular financial institution’s fees which are as follows:
- Wells Fargo: 35%
- Chase: 34%
- Bank of America: 10%
- Capital One: 0%
- Ally Bank: 0%
- USAA: 29%
(Source: https://www.bankrate.com)
How to Get a Bank to Waive Overdraft fees?
If you are charged an overdraft fee, you can negotiate for reimbursement of the fee. Here are a few ways that you can try:
- Phone Call: There is no guarantee that it will work or not, but you can call the bank and politely request the financial institution to remove the charges from your account. If you make only once overdrawn than your account and are a good bank customer, your chances of success increase. Though don’t expect a yes, be prepared to explain why the bank should waive the charges for you.
- Try an App: You can also use an app that will help negotiate overdraft fee refunds for you. For example, Cushion automatically monitors your bank accounts and negotiates with the bank for a refund if you are charged an overdraft fee. Remember, that this process can take up to 90 days.
- Visit the branch: You can also visit the bank to submit a request form for your overdraft charges to get a refund in your account.
Conclusion
Overdraft fees can be frustrating, but there are several steps you can take to avoid them. By tracking your account balances, signing up for overdraft protection, setting low balance alerts, opting out of overdraft protection, and using cash, you can keep your finances in good standing and avoid unnecessary fees.
