If you make a purchase that sends your current account into a negative balance, you are likely to be charged an overdraft fee by your bank or credit union.
If you keep making purchases further into the negative balance, you may be charged multiple overdraft fees.
Overdraft fees can add up and become an unnecessary expense, especially if you find that you are often paying them. As such, it is important to note that there are a number of easy actions that you can take to avoid overdraft fees.
This article will outline five important ways in which consumers can try to avoid overdraft fees.
1. Opt out of overdraft coverage
It is up to your financial institution to decide whether it will cover or reject a transaction that ends up leaving your account balance in negative numbers.
However, a consumer is able to control this by opting out of an overdraft coverage programme, meaning that the transaction will simply be declined if there isn’t enough money. This avoids situations where your financial institution will need to cover the payment on your behalf, and thus end up charging overdraft fees without asking for your permission.
Thus, opting out of overdraft coverage avoids this and means you can’t end up spending more money than what you have in your account.
2. Sign up for bank alerts
A really simple way that can help to avoid unexpected overdraft fees is to set up an automated alert that will notify via email or SMS when your account balance is close to or has fallen below a certain amount that you have set.
For example, you could set up alerts for when your account balance falls to below $250, or $500. It should be set to an amount that will comfortably keep you away from an unexpected overdraft.
If you receive an alert, you can decide to either stop spending or to deposit more money into the account so that you can continue without going into minus figures.
3. Switch to a 0% overdraft account
There are a number of accounts that offer 0% overdrafts. This means that you are granted some more time to pay off your overdraft without paying any fees or interest.
Often, however, these accounts may only offer 0% for 12 months, before jumping to a hefty variable interest rate. As such, ensure that in this 12-month period, you can pay off any outstanding overdrafts before it comes to an end.
4. Get a prepaid debit card account
If you are consistently finding yourself in situations whereby you struggle to keep your account balance at positive figures, then a prepaid debit card might be a considered solution.
Prepaid debit cards work similarly to debit cards, so that the consumer can deposit, withdraw and spend money. Prepaid debit cards generally do not have overdraft services or related fees and so help you to limit a cap on your spending, and thus avoid overdraft fees.
5. If you are in an overdraft, use savings to pay off the fees
Using savings is the easiest way to pay off overdraft debt before it reaches a point where you may be required to pay additional fees or interest.
For those who may need to use their overdraft, this savings amount could be referred to as a ‘cushion balance’. A cushion balance can either exist in that account, or another, so that it can be transferred in instances to make up for areas of overspending or potential negative balances. This will help the consumer to avoid situations where they may be liable to pay overdraft fees.
