Stop Paying Bank Overdraft Fees

A larger percentage of Americans are living paycheck to paycheck than ever before, due to a recession that doesn’t seem to want to turn around yet. Unfortunately, people who tend to drop down to just a few dollars remaining right before every payday often end up having to pay overdraft fees to their bank.

A checking account with a low balance offers a larger chance of a small mathematical error to create chaos over your account! Any error that causes your balance to dip below zero will result in your bank charging you an overdraft fee – typically around $39. Once your fee is hit with the $39, you are even further overdrawn than you were before the fee – and if any other transactions (automatic payments or otherwise) clear before you have opportunity to bring the balance up over zero, you’re going to end up with additional overdraft fees. Most banks will charge their overdraft fee PER transaction over-the-limit. So if a mathematical error caused you to drop under a zero balance and the $39 fee gave you a negative balance of $40 or so, and your $80 car insurance is automatically paid before you make another deposit, your balance will be negative $120 plus an additional $39 for the second transaction – meaning you’re $159 in the hole! You can see how quickly overdrafts can add up and make even the smallest mathematical error a big deal to your financial situation.

While overdraft fees can happen to anyone, they are more common of people who don’t track their finances closely and keep an accurate checking account register. The current economy may make it impossible for you to avoid your paycheck to paycheck situation, you can be proactive and track every incoming and outgoing penny to ensure you always have enough money in your checking account to cover any of your payments. In addition to closely monitoring your finances, here are some additional tips to help you stop paying overdraft fees:

Connect Your Accounts: some banks let you connect your savings account to your checking account. If you overdraw your checking account, they’ll pull money from your savings to cover it, therefore avoiding the overdraft fee. Some banks offer this service for free and others charge a fee for it – if your bank charges a fee, determine whether or not it’s less than the overdraft fee to decide what you want to do.

Create your own overdraft fund: Instead of letting the bank get an overdraft fee from you whenever you overdraw your account, build up a balance in your account. If you deposit an extra $100 or so and pretend it’s not there on your check register balance, you’ll always have a buffer of $100. If you end up making a mistake or overdrawing the account, just be sure to replace it so you don’t lose your safety net.

Stop using automatic payments: if your income is variable or you sometimes have to make your payments late, it may not be a good idea for you to set up automatic payments. When those payments go through before you’ve got enough money in your account, you end up having to pay an extra $39 for each payment that caused you to dip temporarily under zero – and that just makes it that much harder to get caught up.

Use Cash: you can try switching most of your spending to cash, for expenses like grocery shopping and lunches or meals on the town. That way you can’t swipe your debit card and overdraw the account when your bills are being paid. Simply keep cash available in an envelope each week for these expenses, and you can’t spend more than the cash you budgeted.

If you’re someone who has overdrafts frequently, you’re spending a lot of money on fees that you don’t need to spend. Get a good tracking system in place and try one of the ideas mentioned to prevent overdrawing your account and you’ll save money that is better used to repay debts or start investing.