5 Ways To Avoid Overdraft Fees

avoid overdraft fees

5 Ways To Avoid Overdraft Fees

Overdraft fees are one of the nastiest fees you can incur. Essentially, you incur an overdraft fee when you take more money out of your checking account than you currently have available to you. Banks will let you borrow enough money to complete your transaction or pay the check you wrote, but they’ll charge you overdraft fees that averaged $30 per overdraft in 2014.

If you had 12 overdraft fees a year, or just one a month, you would pay $360 or more. That could be a car payment. Luckily, you can use that money for a car payment rather than paying overdraft fees by using the five ideas below to quit incurring overdraft fees.

Tell Your Bank To Not Allow Overdrafts

A super easy way to not pay overdraft fees is to tell your bank not to allow you to overdraft your account. When you sign up for your checking account, many banks ask you to sign a form that allow you to overdraft your account if you pay a fee.

If you decline this service, they won’t let you overdraft your account and you won’t have to pay a fee. If you’ve already signed this form, call your bank and ask them to disallow you to overdraft your account going forward.

Sign Up For Free Overdraft Protection

Another option to avoid overdraft fees is enrolling in free overdraft protection that some banks offer. Overdraft protection works by linking a savings account to your checking account. Whenever you overdraft your checking account, your bank will automatically transfer money from your savings account to your checking account to cover the amount you overdrew your account by.

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Some banks offer this for free while others charge a small fee each time you have to use this service. Either way, you’re saving money rather than paying the full blown overdraft fees.

Keep A Buffer In Your Checking Account

The way I personally avoid overdraft fees is by keeping a buffer in my checking account. Rather than constantly worrying about whether or not a single purchase will overdraw my account, I keep a $1,000 buffer in my checking account to cover any accidental overdrafts. Luckily, I’ve never dipped into that money in an overdraft situation, but it is there should I need it.

Actually Balance Your Checking Account

Most people no longer balance their checking accounts on a daily, weekly or even monthly basis. Instead, they log on to their bank account online and check their balances. Unfortunately, that can cause problems and overdraft fees.

Checks that have not cleared and purchases that have not yet been processed will not come out of your bank account immediately. This can cause you to think you have more money in your account than you really have. If you balance your checking account before making any new purchases, you can avoid over-drafting your account in the first place.

Only Use Cash

The last way you can avoid overdraft fees altogether is to simply not use a checking account. Instead, use only cash. Without using a checking account, there is no way to be charged an overdraft fee. While using only cash may be inconvenient, it might be better than paying hundreds or thousands of dollars in overdraft fees every year.

You wouldn’t be alone either. Many people only use cash in a method of budgeting called the cash envelope method. They do this to make sure they don’t overspend. You can do the same thing to make sure you don’t overspend your checking account.

Quit paying overdraft fees. Start using any combination of the above ways to avoid these fees and you’ll suddenly have more money in your checking account every month.

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Lance Cothern
Lance Cothern loves everything personal finance and has his own blog exploring his thoughts on the subject at MoneyManifesto.com. Together with his wife, they've paid of over $80,000 in student loans on their way to financial success! In addition to his blog, you can connect with him on TwitterFacebookPinterest or Google+.