money

6 Ways to Avoid Overdraft Fees

TJ Porter

WealthFit Contributor

You check your bank account and find not only have you overcharged your account — you also have a charge for $35. Your first thought is that someone has stolen your debit card or your account info. But a closer look reveals that the bank withdrew this money from your account. Even though you may think this was a mistake, it wasn’t — it’s what’s called an overdraft fee.

You check your bank account and find not only have you overcharged your account — you also have a charge for $35. Your first thought is that someone has stolen your debit card or your account info. But a closer look reveals that the bank withdrew this money from your account. Even though you may think this was a mistake, it wasn’t — it’s what’s called an overdraft fee.

Whether you’ve been in this exact situation or something similar, incurring overdraft fees when you overcharge your account can be a frustrating experience. These fees relegate your bank account to the negatives and take away your hard-earned money — $30-$35 at a time.

Before we discuss ways to avoid an overdraft fee, let’s take a look at what they are and why they exist. 

What Is An Overdraft Fee?

Simply put, an overdraft fee is a fee that your bank charges when you spend more than you have available in your checking account. 

For example, if you have $25 in your checking account, go to the grocery store, and swipe your debit card to buy $30 in food, it’s up to the bank to decide whether to allow the transaction.

One of two things can happen: 

  • The bank can decline the transaction, and you can’t make a purchase.
  • The bank can allow the transaction, relegating your balance to -$5 (in this situation) and charging you an overdraft fee. 

Let’s dive deeper into the second scenario. If your overdraft fee was $35, that means that after the purchase, your account will read -$40. This means that you’ll have to pay $40 simply to get back to a zero balance, and you’re paying an extra $10 for groceries — and getting nothing for it — because of the overdraft.

Unless you have overdraft protection — which we’ll discuss in this article — the bank doesn’t like making what is effectively an unexpected loan, so they discourage overdrafts by charging fees. 

These fees make overdrafts one of the most expensive forms of credit that you can get.

How Much Overdraft Fees Can Cost

Because overdraft fees are set by each bank, there is no one standardized fee. These are the overdraft fees charged by five of the largest banks in the United States:

  • Chase - $34, limit of $102 per day
  • Bank of America - $35, limit of $140 per day
  • Citibank - $34, limit of $136 per day
  • Wells Fargo - $35, limit of $105 per day
  • HSBC - $35, limit of $105 per day

It’s easy to see the significance of knowing how to avoid overdraft fees. All it takes is a few of them and suddenly, you’re paying over a hundred dollars to your bank for reasons that you can completely avoid. 

6 Ways to Avoid Overdraft Fees

Here are five actionable ways to avoid overdraft fees and keep that money in your pocket. 

Opt-Out Of Overdraft Protection From Your Bank

Just because your bank offers “overdraft services” — allowing you to make a purchase even if you don’t have the money in your account, though charging you an overdraft fee — doesn’t mean that you have to use it. 

You have the right to tell your bank to not allow you to overdraft your account. In fact, we recommend you use this right. 

This takes advantage of a 2009 regulation announced by the Federal Reserve that bans banks from charging overdraft fees on ATM and non-recurring debit card transactions unless the customer signed up for overdraft protection.

If you do choose to opt-out of overdraft protection, your card will decline at the point of purchase instead of receiving an overdraft fee. 

While this will keep you free and clear from overdraft fees, it’s important to note that if you have a low balance, it could put you in a bind if you use your debit card to buy essentials, like food. 

If you use your debit card to pay bills, such as your electric bill, and it declines, it could also result in late payments and fees (or even the power shutting off) from the company that is sending the bills.

Sign Up for Overdraft Protection Transfers

If you have a savings account linked to your checking account, many banks offer what’s called overdraft transfers. Here’s how it works: if you sign up for this service, the bank will automatically move money from your savings account to your checking account to prevent overdrafts. 

This strategy is only works, though, if you have money to spare in your savings account. If your savings account is also low on funds, you’ll end up incurring an overdraft fee in your checking account.

While there is usually a fee for this service — which ranges from $10-$12.50 per transfer — it is much less than the fee charged for an overdraft. 

Sign Up for Account Alerts

Many banks provide a feature that will send you an alert whenever your account balance reaches a specific low amount. 

You can set an alert so you’ll get an e-mail or a text from our bank whenever your balance falls below $50, $100, or whatever minimum balance you choose.

When you receive an alert, you’ll know exactly how much money you have in your account which can help you gauge your future spending. After all, sometimes an overdraft fee is incurred simply because you lose sight of how much you have available. 

Alerts will also notify you if someone steals your card information and uses it to make purchases. 

Be Aware of Purchases That Place A Hold On Your Account

Sometimes, you have to swipe your debit card for a purchase before you know exactly how much you’ll be paying.

Think about filling your car up with gas. You swipe your card before you pump the gas and know the final total. To make sure that you have enough money to pay for the final transaction, the gas station places a hold on some of the money in your account when you swipe your card. 

For example, the gas station could place a $50 hold, even if you only wind up buying $20 in gas. While the hold is in place, the money stays in your account but can’t be spent.

When you check your account balance, you’ll see that you have $100 in the account. If you fail to see that there’s a $50 hold, you might try and spend $75 only to get hit by an overdraft fee.

If you’re buying gas, staying at a hotel, renting a car, or taking part in some transaction that involves placing a hold on your funds, keep in mind how the hold will have an effect on your balance. 

Track Your Spending

The best yet most simple way to avoid overdraft fees is to not spend more money than you have. While it sounds simple, it can be hard to put into practice. And the best way to do this is by tracking your spending. Don’t let your bank account and your charges go on autopilot. 

Tracking your spending will also help you stick to your budget and not fall into debt

In the event of an unexpected bill that relegates your account ot the double or single digits, utilize your emergency fund to avoid even the chance of overdraft fees. If you don’t have an emergency fund, you can find out how to save for one here.

Ask The Bank To Waive Overdraft Fees

Though not guaranteed, there are ways to get an overdraft fee waived. 

Banks may waive an overdraft fee if:

  • it’s the first time that you’ve overdrafted the account 
  • you’re a very irregular overdrafter
  • you experience issues with customer service or other technical related tasks

When you’re on the phone with your bank, don’t be afraid to be persistent but polite. 

If the representative says no the first time you ask, point out your history with the bank and that you’ve been a good customer and you’re free to take your business elsewhere. 

It might also be worth hanging up and trying again with a different customer service representative the next day.

Above all, don’t be rude or pushy, just ask if there’s anything that the person on the line can do to help you out. 

Sometimes, you’ll get lucky. Other times, you’ll just have to pay the fee and move on — but not let it happen again. 

What Happens If You Don’t Pay An Overdraft Fee?

Once an overdraft fee is placed on your account — unless you can get it waived — it must be paid. 

If not, you can incur other negative balance-related fees and eventually, the bank may shut down your account and ask creditors to seek repayment, undoubtedly dinging your credit score

How to Avoid An Overdraft Fee

Now that you know what an overdraft fee is — and most importantly that overdraft fees are entirely avoidable — use any of the strategies mentioned in this article to ensure you never pay one again. 

Instead of handing that money to the bank, use it to fund a side hustle, pay off debt, or invest it. 

Share

Written By

TJ Porter

TJ Porter is a Boston-based freelance writer who specializes in credit, credit cards, and bank accounts.

Read more about TJ

RELATED TRAINING

 in 

MONEY

article
4 Proven Ways to Pay Less Taxes

Learn four strategies to lower your tax bill and keep more of what you earn.

4 Proven Ways to Pay Less Taxes

TJ Porter

Read Now
article
What’s the Best Type of Savings Account?

Discover 4 different types of savings accounts, why their returns are terrible, and how to invest your money instead.

What’s the Best Type of Savings Account?

TJ Porter

Read Now
podcast
Watch Her Work: Closing The (Achievement) Gap

Helping women go further faster, in this episode Dustin sits with Founder of WatchHerWork, Denise Hamilton to discuss diversity and inclusion in the workplace, how to take control of your career, and how she built a 7,000 video library that provides professional advice to women from all walks of life.

Watch Her Work: Closing The (Achievement) Gap

podcast
Student Debt, ‘On The Side’ Income & Investing Quickstart

In this episode, Robert Farrington takes us through his journey from working at Target, to hitting his target investment goals. Helping millennials get out of student loan debt and accept personal accountability for their money, his expertise is shared to help build wealth through investing.

Student Debt, ‘On The Side’ Income & Investing Quickstart

podcast
Quit Like a Millionaire

Imagine retiring in your 30's and traveling the world on permanent vacation. Kristy Shen and Bryce Leung live this lifestyle and sit down with Dustin to explain how you can do the same. By going against the norm, investing their money, and quitting their jobs, tune in as they share helpful tips from their new book, Quit Like a Millionaire.

Quit Like a Millionaire

article
How To Graduate Debt Free

Learn how to graduate with NO student debt by thoroughly researching a career, winning free money, and picking a major with a high ROI.

How To Graduate Debt Free

Erica Gellerman

Read Now
Financial Adulting

Financial Adulting

The 20-Something's Guide to Debt, Investing, and a Wealthy Life

Ellen & Micah Long

Watch Now
Zero Student Debt

Zero Student Debt

How To Make a Smart College Investment and Graduate Debt-Free

Ellen Long

Watch Now
podcast
unHustling - Work Less, Earn More

Join Phil Newton as he and Dustin discuss how to de-stress your life and achieve work-life balance while increasing your income.

unHustling - Work Less, Earn More

article
How To Improve Your Credit Score In 30 Days

Want to improve your credit score fast? Learn 3 different strategies to improve your credit score in 30 days or less.

How To Improve Your Credit Score In 30 Days

Michelle Black

Read Now
Money 101 for Teens

Money 101 for Teens

The Ultimate Guide To Making, Spending, Saving, and Investing Money

JP Servideo

Watch Now
podcast
Wealth Acceleration

Learn how Stuart Arakelian recovered and prospered from the 2008 financial crash—and how it impacted his philosophy on wealth management.

Wealth Acceleration

Wealth That Lasts

Wealth That Lasts

Simple Secrets to Getting (and Staying) Wealthy

Tom McFie

Watch Now
Getting Out of Debt

Getting Out of Debt

How To Eliminate (Bad) Debt and Maximize Your Cash Flow

Michele & John McFie

Watch Now
Smart Budgeting

Smart Budgeting

How to Create a Cashflow-Positive Budget . . . And Stick to It!

Scott & Bethany Palmer

Watch Now
Wealth-Building 101

Wealth-Building 101

How to Get Out of Debt, Boost Your Active Income, and Start Investing for Passive Income

Andy Proper

Watch Now
podcast
Timely Tax Benefits, Wealth Preservation & Leverage

Preserve your hard-earned wealth. Learn to use tax advantages to your benefit and leverage trusts with Supreme Court Counselor Lee Phillips.

Timely Tax Benefits, Wealth Preservation & Leverage

podcast
Cutting the Cable

What’s the cable cutting movement all about? Cable Cutting Academy's Jeremy Edmonds discusses tech and finance hacks to save you money.

Cutting the Cable

article
How to Write A Goodwill Letter That WORKS [Templates Included]

Is a late payment hurting your credit score? There's good news: you write a goodwill letter and ask the creditor to take it off your credit history.

How to Write A Goodwill Letter That WORKS [Templates Included]

Lance Cothern

Read Now
article
Pay Off Your Mortgage With a Credit Card: When Does It Make Sense?

Paying the mortgage with a credit card is becoming a more popular strategy. But is it a good strategy?

Pay Off Your Mortgage With a Credit Card: When Does It Make Sense?

Justin McCormick

Read Now
podcast
How To Negotiate a Higher Salary

Want to boost your salary? Rich Jones and Marcus Garrett help you determine your financial worth. Negotiate for the life you deserve.

How To Negotiate a Higher Salary

article
6 Different Kinds of Car Insurance: Which is Right for You?

If you don’t know what your car insurance plan covers—now’s the time to find out. You’ll be surprised by how much you can save.

6 Different Kinds of Car Insurance: Which is Right for You?

Nathan Wade

Read Now
article
Are You a Restaurant Server? Here's How To Budget When You Work for Tips

Learn how to budget when you work for tips. How to take control of your finances in the service industry.

Are You a Restaurant Server? Here's How To Budget When You Work for Tips

Jill Huettich

Read Now
The Hidden Power of Life Insurance

The Hidden Power of Life Insurance

How to Protect Your Ass(ets), Save Smarter, and Start Putting Your Money to Work

Stuart Arakelian

Watch Now