November 2, 2022

How To Avoid Overdraft Fees: 6 Smart Ways to Manage These Bank Charges

Have you ever had a situation where you needed to use your debit card, but you discovered that there wasn't enough money in your account? If so, you've probably also experienced the frustration of having to pay overdraft fees.

Being hit with these charges are almost unavoidable. But what if we told you there was an easy way to avoid overdraft fees? In this article, we’ll discuss how to avoid overdraft fees and why they happen in the first place.

What Are Overdraft Fees?

First, let’s understand: what is an overdraft fee? Overdraft fees are the charges you can expect from banks and credit unions when you spend more money than you have in your account.

If you try to make a purchase for more than the amount of money in your checking account, most banks will decline the transaction and send back your check or debit card transaction.

However, if you've agreed to overdraft coverage, banks will allow you to overdraw your account, which means they'll complete the purchase and charge you an overdraft fee. Depending on your bank, these fees will typically cost $35 or more per transaction.

In most cases, you will have five business days to deposit enough money to cover the overdraft before your account goes deeper into the red. You should therefore make sure to act immediately to avoid triggering additional fees.

Why Do You Get Hit With Overdraft Fees?

If you're a bank customer, there's a good chance that you've been charged an overdraft fee at some point. And if you're not careful, it can be easy to let those fees rack up and get out of control. Let's take a look at some of the reasons you get hit with these fees.

Insufficient Funds in Your Account

If you have a bank account, you need to have enough money to cover any purchases you make. Trying to spend more than what you have in your account will alert the bank and they'll either reject the transaction or charge you a fee.

Not Understanding Your Bank's Overdraft Policies

If you don't know your bank's policy on overdrafts, you could end up paying a lot more than you would have thought. Make sure to read over your bank's rules before you get any services from them to know exactly how much it will cost if something goes wrong—so you can know how to avoid overdraft fees.

Multiple Transactions in a Short Period

There's nothing wrong with going on a shopping spree or buying dinner for your friends. However, if you don't have enough money in your account to cover the bills, you could end up paying an overdraft fee. Make sure you track how much money is in your account and how much you have left after each transaction.

You're Not Paying Attention to Your Balance

Checking your account balance is like checking the weather before going out. If your bank doesn't send you a text or email when your balance gets low, you'll need to keep an eye on it yourself. Knowing your account balance will help you avoid spending more than you have.

Debit Card Fraud (Or Other Unauthorized Transactions)

When someone steals your debit card and makes purchases on it without your permission, those purchases will be charged back to your account, and if they spend more than what you have, you can be sure there will be an overdraft fee attached. If this happens to you, contact your bank immediately—you may be able to dispute the charge and get the fees waived.

6 Ways To Avoid Overdraft Fees

Overdraft fees are a pain—they're a common banking practice and can be surprisingly high. The good news is that there are plenty of ways to avoid them—and we'll walk you through some of the smartest ones right now!

Here’s how to avoid overdraft fees in six different ways.

1. Link Your Savings Account to Your Checking Account/ Investment Account

This step is one of the best ways to ensure you won't incur bank overdraft fees. By linking your checking account to a savings or investment account (money market account) at your bank or credit union, you can transfer funds from one account to another when needed.

This way, if there isn't enough money in your checking account to cover a purchase, your savings or investment account will automatically be tapped into instead so you don’t get charged an overdraft fee.

2. Set up a Direct Deposit to Your Checking Account

Setting up a direct deposit from your paycheck into your checking account will ensure you have enough money in your account to cover all of your payments. These may include bills and checks you write at the end of the month.

3. Set Up Alerts

Sign up for text or email alerts to receive a notification from your bank when your bank account balance is running low. This will allow you to fund your account before you make a purchase or write a check.

4. Opt Out of Overdraft Coverage

Opting out will mean you won't be able to use your debit card or ATM card if you don't have enough money in your account. If your account is negative and you try to spend money, the transaction will simply be declined.

5. Contact the Bank

If you've accidentally overdrawn your account, contact your bank and ask them if they would consider waiving the fee. Often, banks will waive fees for responsible customers who have made this mistake the first time.

6. Keep a Cushion Balance

Finally, one of the most effective ways to avoid overdraft fees is simply by keeping a cushion balance in your account. You can download apps like Earnin that notify you when your balance drops below a certain amount to know when it's time to transfer some funds over.

If there's enough money to cover any possible transactions, then you shouldn't have any reason to worry about getting hit with an overdraft fee!

Should You Consider Overdraft Protection?

Overdraft protection guarantees that your bank will cover the cost of any check, wire transfer, ATM, or debit card transaction if you don't have enough money in your account to pay for it.

Customers who sign up for overdraft protection assign a backup account—usually a savings account, credit card, or line of credit—that the bank uses to cover any transactions where insufficient funds exist. Overdraft protection lines of credit can be as low as $250 and go up to $5,000 or more.

Overdraft protection is ideal if you occasionally experience short-term financial difficulties and need help covering an unexpected bill. However, depending on the linked account used, it may carry heavy fees or additional interest charges (for example, if you've linked to a line of credit).

It's, therefore, important to understand all the terms and conditions before signing up for this service.

How Can Earnin Help With Overdraft Fees?

When your bank account balance is low, it's easy to get caught up in the cycle of overdraft fees. You try to make a purchase, and when you can't afford it, you're hit with an overdraft fee.

Luckily, there's an easy solution to this—and Earnin can help.
Earnin helps you get early access to your paycheck before payday through our Earned Wage Access tool. Cash Out is a great option to help you make sure your bills are paid on time by giving you quick access to the wages you've already worked for. This way you can avoid unnecessary expenses like overdraft fees.

Our Balance Shield feature also alerts you when your bank account balance falls below the amount you've designated—so you can always stay on top of your finances.

Download the Earnin app today and start managing your finances!