9 Ways to Avoid Overdraft Charges

I would venture to guess that mine was the last generation that was taught how to balance a checkbook. (I remember a Junior Achievement course in the 8th grade, circa 1995, that provided me the skills to keep my cash flow in the black.) But there's something to be said for the ease and convenience of mobile banking.

With that ease, however, comes errors — sometimes multiple errors — in the form of overdraft fees because we've overspent without knowing it. Keep those unnecessary expenses in check with these ways to avoid overdraft fees.

1. Get Familiar With Your Bank's Policies

Before you choose a bank, it's important to familiarize yourself with its policies. Not all banks are alike, after all. Some banks offer overdraft protection, while some offer no-fee transfers from savings to checking. All banks have fine print that you should absolutely read. Going into a financial situation educated will help you cut back on costly mistakes that can be easily avoided.

2. Use Mobile Banking to Track Spending

If you're one of the few people in America who still use paper checks as a primary source of payment, thus constituting the balancing of a checkbook, I should introduce you to my grandmother — because I think you'll have lots in common.

But if you prefer to be part of the majority who live in the 21st century, it's wise to keep track of your finances via mobile banking. Most banks have apps that you can download to your phone to keep track of your finances anytime, anywhere. There are lots of cool features as well, like the ability to transfer between accounts and deposit checks with a few taps and photo image. The latter is a godsend for me as a small business owner, since I no longer have to take time out of my day to deposit checks at a banking brick-and-mortar.

3. Login Daily to Monitor Your Balance and Transactions

What's the first thing you do when you wake up? When you asked this question in the 1980s, the answer was usually "Go to the bathroom." Fast-forward 30 years and that answer is altogether different — for me, at least. The first thing I do in the morning is check my social media and bank accounts.

Because before I start my day, I want to make sure that 1,500 strangers still like me, and none of them have robbed me blind. Logging in everyday reminds me to check for erroneous charges, allows me make a mental note on recent charges that may not have posted yet, and informs me on whether I can afford to go out to lunch or I should reign in the spending a bit — all of which help me avoid overdraft fees.

4. Get Alerts When Your Account Dips Below a Certain Threshold

When researching the ins and outs of your banking institution — particularly the checking account services it offers — look for information regarding text or e-mail alerts that notify you when your account dips below a certain threshold. For instance, I have alerts set at $100. If I make transactions that cause my account to go below $100, I'll receive an alert that serves as a warning to stop spending immediately and build my account back up.

5. Transfer Funds Immediately

If you think you've perhaps made more purchases than you have money, transfer those additional funds from your savings to your checking account immediately. I don't recommend dipping into your savings often (it defeats the purpose), but you should deal with the issue at hand first, which is avoiding overdraft fees. It's also wise to bank at an institution that offers no-fee transfers when you're in a bind. Sustaining a hit to avoid a hit is sure to put a kink in your day.

6. Ask to Have Overdraft Fees Waived

Pull a page from my playbook and call your bank if you feel like you deserve a pass on an overdraft fee. If it's been awhile since you've made that mistake, or if you've been a loyal customer to the bank for many years, it's worth the effort. In most cases, the bank will work with you to eliminate the fee on a one-time basis.

7. Opt Out of Overdraft Protection

Overdraft protection is good on one hand because it lessens the fee you pay if you overdraw the account — usually a $10 fee instead of $25 or $35. On the flip side, overdraft protection will allow you to continue to make purchases for which you don't have the money. This is an especially unfortunate consequence if you're not aware that you're overdrawn and you continue making multiple purchases. You'll rack up a fee for every single transaction, which, by the time they've all posted, could become a significant amount.

8. Don't Use the Credit Option on Your Debit Card

Back in the early days of debit cards, my bank would charge me a nominal fee for each purchase when using it as a debit card, kind of like a competing ATM does. Made absolutely no sense to me, but because of that I started using the credit option when making purchases, which had no fees attached. Nowadays, debit charges are fee-free, so I try to remember to push the purchases through using that method, for one reason: Debit transactions post immediately, whereas credit transaction could take a few days to post. The former will help you stay on top of your financial situation in real-time while the latter could have you overdrawing your account unknowingly.

9. Keep X Amount of Dollars in Your Checking Account at All Times

The best way to avoid overdraft fees is to keep your bank account in the black at all times. To help ensure that you don't go into the red, choose a self-imposed amount at which you'll always keep your account — $100, for instance. If you mentally make it standard policy that your account consistently has at least $100 in it, you'll rarely overdraw, if at all.

Do you have other suggestions on how to avoid bank overdraft fees? Let me know in the comments below.

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With the ease of mobile banking does come errors, in the form of overdraft fees because we may have overspent without knowing. Keep those unnecessary expenses in check with our tips to avoid those unnecessary fees! | #moneymanagement #budgeting #financetips

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Guest's picture


Being worked in for a bank, I can assure that these tips are the best. Especially the best method is to keep track of the spending and keep some money in the account.

Overdraft charges can really become huge and it would lead to next step of the tip, asking to get it waived.

Try to get it off the bills, if it happens then ask for a refund. Bang on.

Nice post.

Guest's picture

I set up alerts to notify me when my account hits a certain balance and I also check it daily. Not only do these habits help eliminate overdraft fees, but they also can provide early warning of identity theft.

Guest's picture

I like that, particularly as a means of detecting any fraud. Thanks for the tip.

Guest's picture

Debt can be a curse that is hard to shift. Overdrafts are a sneaky way of getting into spiralling debt. I guess the key message is dont be afraid to deal with the problem. Once you start to tackle debt (overdraft in this case), you will feel better and find that it can work for you.

I built up a huge amount of debt when I set up my company, it took years for me to focus on it, once I did it was a huge pressure release. I guess the biggest challenge is understanding and calculating the true amount of debt and best debt reduction plan.

Calculating overdraft costs is tricky, the charges can dissapear amongst your other bills and are not always clear. Make sure you take the time to calculate your overdraft rates properly as they can often be higher than the rates you could get on a personal loan (which in turn could be used to pay off the overdraft).

Guest's picture

Did you know that Americans paid over $32 billion in overdraft fees alone in 2012? I work for BankMobile, who recently launched with a mission to make banking fee-free and effortless, without having to jump through hoops. We even provide fee-free overdraft protection for those who want that service, without any transfer fees.

Guest's picture

Great article although it's sad that you have to defend your money from the stewards of its care.

I believe the best tip here is to always keep a balance. I always tell clients to have a float and decide int their minds that $1000 is the new $0.