It is hard enough spending money on items that you need; it is even harder spending it on something that has no benefit to you, such as bank overdraft charges. An overdraft fee happens when your bank account, generally a checking account, does not have sufficient funds to cover a check, ATM withdraw, purchase or payment. Typically, with overdraft protection, the bank will allow the purchase or withdraw to go through, but will charge you a large fee. Often, you are charged a fee for every transaction once you are below balance.
This means that a big day of shopping can end up costing more than you expect if you accidentally go into overdraft. In a 2008 survey from the FDIC on overdraft charges (http://www.fdic.gov/bank/analytical/overdraft/FDIC138_Report_Final_v508.pdf), they found that the average overdraft fee charged by financial institutions was $27.00. However, there are some simple steps you can take to avoid or even eliminate these unnecessary charges, so that you can hold on to your money longer.
Link to savings account:
Some banks may allow you to link your checking account with your savings account, so that if you do not have the funds to cover the purchase, it will automatically deduct it from your savings account. Be sure to read all of the details, as there may still be fees (although not overdraft protection fees) associated with such a transaction. In addition, you run the risk of running down your savings account if this becomes a habit.
Get alerts:
Many banks offer alerts for your accounts. Stop into your bank, or look it up on-line to find out what automatic notifications they offer. At time of printing, JP Morgan Chase Bank (www.chase.com) offers a service called Chase Instant Action Alerts where customers can receive texts or e-mails when their account drops below a customer determine amount, when they have an ATM withdraw of a specified amount, or when the account enters into overdraft. These and other similar alerts may either prevent the first overdraft to happen, or provide a warning to prevent continued overdraft charges.
Shop around:
Check with the various banks in your area to find out what promotions they are offering for overdraft protection. Be sure to read all of the details, the fine print, and find out if the promotion will be offered indefinitely, or if it is just for an introductory period. For example, at time of article printing, Huntington Bank (www.huntington.com) is offering a promotion called ’24 Hour Grace,’ which will waive any overdraft fees when an account is overdraw, provided the customer makes a deposit to cover the overdraft by the next business day. Be sure to check with this bank, and others, for the specific details of the promotions that you are researching.
Opt-out:
According to ‘A World Without Overdraft,’ by Blake Ellis, from www.money.cnn.com, effective August 2010, banks can no longer automatically enroll you in their overdraft protection plan for purchases and ATM withdraws. Instead, customers are required to opt-in if they want this specific overdraft protection. By declining the overdraft protection, you avoid the potential overdraft charges should you find your account with a zero balance. However, you run the risk of having your purchase declined at the register or ATM. As long as you can deal with the embarrassment, and have an alternative form a payment, it may be worth it for the money saved in the long run.
Use cash:
One of the easiest ways to avoid overdraft charges from purchases is to use cash. If you are doing a lot of shopping in one day, or will be running from one store to another, it is easier to keep track of your funds if they are in your wallet, rather than on your debit card. Before you head out for your shopping trip, establish your budget for the day. Make your first stop at the ATM, check your balance to make sure you can cover the ATM withdraw, take out the money, and stick to the cash in your wallet.
Overdraft charges can be frustrating for bank customers, particularly when the overdraft happens in error, or ends up costing hundreds of dollars because of multiple overdrafts. However, there are some ways to prevent, or at least limit you from paying these charges, so you can use the money for something you actually need or want.