In a recent article by CNN Money, they mention the raw deal that you get from a banks overdraft protection. Typically, banks offer you this ‘protection’ and automatically approve a transaction, even if you do not have the money in the account. The convenience or overdraft fee for this can range up to $40 or more. So if you overdraw on your account by $1, you are slapped with a $40 fee! I really don’t think that you made out to well on that loan from the bank! Obviously, the higher the amount of the overdraft, the less the fee hurts.
Some banks are now allowing you to opt out of overdraft protection, meaning that if you overdraw, they will just deny the purchase (which may get you in trouble other places). Check with your bank to see if they do this. Other banks, like my credit union, allow you to link your savings account to your checking account in case you overdraw. For example, let’s say you have $100 in your checking and $500 in your savings. You write a check for $200 thinking that you have that in your checking. When the bank cashes the check, the bank will take $100 from your savings and automatically deposit it into your checking to cover the amount. The only problem with this system is that you have to have money in your savings account to cover it, which I do not. Some banks even charge for this convenience. Chase charges $5 per occurrence.
Here Are Some Tips to Help You Avoid Overdraft Fees
1. Utilize Your Banks Overdraft Protection Plan
If your bank offers you to link your savings account to your checking account, do it. Even if it costs money to use it, it is still cheaper than the alternative. I certainly would rather pay $5 instead of $40.
2. If You Are Hit With the Fee, Call Your Bank and Explain
This has happened to me several times. I did something stupid and sure enough, I overdrew on my account. I called up my bank and explained what happened. They were rather understanding and decided that since it was my first offense, they would take the fee off as a favor. They said that it would be the only time that they did it. Well, it happened to me again several months later and I called and they did the same thing. I guess the don’t have very good record keeping! So, be persistent and chances are you will have the fee removed or lowered.
3. Keep Good Records
Almost half of all overdraft fees are due to debit cards. Well all think of them as a huge convenience, and they are. You just need to make sure that you record them properly in your checkbook register. This will help eliminate many overdrafts. If you are unaware of you balance, you may make several purchases that put you over your balance and you will be slapped with a fee on each one.
4. Opt Out of Your Banks Overdraft Protection
Many banks allow you to opt out of the convenience of overdraft protection. If you feel that you will always be on the edge of a $0 balance, you might want to opt out.
5. Get Email Alerts
Many banks now offer some type of email alert. You can set it up to let you know if you are within $100 of a zero balance. They also offer other convinient email subscribtions that might be beneficial. I know my bank offers e-mail alerts if I am over a certain limit in spending categories for the month. This makes it a great budgeting tool.
Does anyone else have some techniques that they use to help combat overdraft fees? Does anyone have a horror story that they would like to share in reference to these fees?