3 Simple Steps To Avoid Overdrawing Your Bank Account

Big banks have found themselves under the microscope for a variety of issues over the past few months. Now that more people are paying attention to what is actually going on within the lending industry, many consumers are livid that banks in the U.S. are on track to collect close to $39 billion in overdraft fees this year alone. Obviously no one expects banks to operate for free or at a loss, however this figure seems a bit excessive as millions of people still struggle to get back on track financially. Here are a few tips to help you keep your hard earned cash in your checking account versus contributing it to the billions already collected in overdraft fees.

• Review your account information to understand overdraft policies- Each bank has their own policy regarding overdrawn accounts. Does your bank decline a debit card transaction that exceeds available funds? Do they return checks or other transactions if there is not enough money in your account or will they process and honor these transactions for a fee? Can you link a savings account to your checking account to serve as back-up? These are all questions you should be able to answer to avoid paying unnecessary fees. If you do not know what actions will result in fees you have no way to avoid those actions.

• Create a cushion or buffer- It is not uncommon for people living paycheck-to-paycheck to have a revolving bank account balance. In other words, money goes in on payday, bills are paid and there is little if anything left over until the next pay day. Unfortunately the very people who cannot afford to pay overdraft fees are the people more likely to incur them. This can be prevented by creating a cushion of cash that remains in your account to cover mistakes or errors. Do this simply by deducting your “cushion” amount from your account balance without actually removing the money from your account. If you cannot do this in one lump sum, consider deducting a few dollars each week to fit your budget. Another way to build a cushion is by rounding up every transaction. If you use your debit card for $19.21, record it as $20. If you do this every time you will be surprised how quickly it adds up without even realizing you are saving money.

• Record and track every transaction- The single most important thing you can do to avoid the fees and penalties that result from an overdrawn checking account is to not spend more money than you have in your account. To do this you must know how much money you have in your account and what transactions are outstanding at all times. Years ago, you would do this by simply logging deposits and checks written against your account. Today most consumers have to track checks, debit card transactions, direct deposit, transfers and electronic payments (reoccurring or automatic). Failing to record even one transaction can have disastrous results and start a domino effect of overdraft fees and/or transactions returned for insufficient funds. Regularly balance your check registrar and pay close attention to transactions posted to your account. Most banks offer online access to your account balances making it easy and convenient to quickly track transactions and spot errors immediately.

Just as many people are angered by the actions of banks in recent months there are other consumers who feel that banks-like other businesses have every right to make money. Regardless of where you stand on this issue, the fact remains that each person is ultimately responsible for managing his or her money. Avoid fees and penalties by managing your accounts according to the terms of your agreement and building a cushion of added protection. Exercise your right to change banks if you feel you have been treated unfairly. Invest the time and energy required to maintain accurate and up to date records and contact your bank immediately when you notice errors on your account. By doing these things you will reduce the chances of overdrawing your account and save hundreds of dollars in fees or penalties.