What Is An Overdraft Fee And How Can You Avoid It?

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You recently made several purchases using your debit card and scheduled a few payments. But you forgot to check your checking account balance beforehand, and the total amount of transactions exceeded your available balance. So now, you’re stuck with pesky overdraft fees, and your account balance is negative. 

This situation isn’t all that uncommon. Fortunately, there are ways you can avoid overdraft fees so you won’t have to fork over extra funds to your bank or credit union. 

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What Are Overdraft Fees?

Overdraft fees are charged by your financial institution when you spend more than you have available in your checking account. Your bank or credit union covers the purchase or payment and charges you an additional fee. 

How Do Overdraft Fees Work?

Overdraft fees are generally assessed for each transaction. To illustrate, assume you have $200 in your checking account. You schedule a utility payment for $150 and spend $75 to treat your family to a nice dinner. If the bank charges an overdraft fee of $36 per transaction, you’ll be on the hook for an additional $72. Here’s how your bank account would be impacted: 

  • $200 – $150 (utility payment) – $75 (family dinner) = -$25 (account balance after transactions are posted) – $36 (overdraft fee for family dinner) = -$61 (amount that must be deposited right away to avoid additional overdraft fees)

Overdraft Fees vs. Non-sufficient Funds (NSF) Fees

Contrary to popular belief, overdraft and NSF fees aren’t the same. Overdraft fees are assessed to account holders for items your credit union or bank covers. However, NSF fees are charged if your financial institution decides to return the item instead of paying it. So, you’ll owe the bank or credit union and the individual or business that initiated the payment. 

What Happens If You Don’t Pay My Overdrafts?

Ignoring overdraft fees can result in severe consequences. The bank could close your account and notate the closure in your banking history, making it very challenging to get new accounts elsewhere. Even worse, the unpaid balance could be turned over to a collection agency and tank your credit score. 

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What Can You Do To Avoid Overdraft Fees?

Cover The Negative Balance Quickly

Some purchases and payments remain pending for a day or two before posting to your account. If you’re able to deposit an amount that exceeds the negative balance, you may be able to avoid overdraft fees. 

Track Your Spending 

If possible, check your account balance and review transaction activity daily. You also want to note scheduled purchases to ensure they’re accounted for, even if they haven’t been posted to your account. Doing so allows you to initiate purchases and payments without worrying about overdrawing your account. 

Keep Sufficient Funds

Ideally, it would be best to have a spending plan that accounts for deposits and expenditures. Then, if you stick to the plan and make additional deposits as needed to cover added expenses, you’ll avoid overdraft fees. 

Opt-Out Of Automatic Overdrafts and Overdraft Protection

If you opt-out of overdraft protection, any purchases that exceed your available balance will automatically be declined. This also prevents you from incurring overdraft fees. 

Depending on your financial institution, you may have the option to link your savings account or credit card to your checking account as a backup funding source. You could be assessed a fee for this service, but it’s generally lower than you’ll pay for standard overdraft fees. 

Sign Up For Bank Alerts 

You can set transaction limits and opt-in for real-time alerts each time a purchase or payment is made using your checking account. 

Switch To An Account That Doesn’t Charge Overdraft Fees 

Overdraft fees are never any fun and can ding your wallet. The good news is that you can open an online account with Current, an innovative financial technology company, to avoid overdraft fees. 

Current offers banking services through Choice Financial Group, Member FDIC. When you open a Premium Account, you’ll enjoy early payroll deposits, generous cash-back rewards and returns on your money, overdraft protection (limited to $200 on select accounts) with no overdraft fees1, and so much more. only $4.99 per month to take advantage of these perks, and it only takes two minutes to sign up. 

Visit Current’s website to sign-up and get started with the mobile app to open a bank account and upgrade your online banking experience. It’s available on Google Play and the AppStore.

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