An overdraft fee is a charge the bank imposes on your account each time you withdraw more money from your account than what is available. Overdraft fees can sum up to a significant total, mainly if you have to pay them many times. It's a good idea to think of preventing overdraft fees on your account.
An example of an overdraft fee is if your bank covers you for an automatic overdraft service. The bank will avail funds to you even when your account has a negative balance, and it'll charge you for the overdraft service. Part of the negative balance will be what the bank pays on your behalf.
In simple terms, the bank loaned you money, and you must pay it back, plus a fee. The good thing is that you can take steps to prevent overdraft fees on your account.
Banks have increased their overdraft fees, but the figure varies from one bank to another. The average overdraft charge is $33.47, as reported in a Bankrate's study on ATM and checking account fees. Meanwhile, PrimeWay announced that it would charge no overdraft fees on all accounts.
Overdraft fees can quickly pile up and create a financial burden on you. Many Americans are paying billions of dollars in overdraft fees, and it has become an issue of concern even for legislators. The US Senate and House of Representatives proposed bills to protect consumers by limiting overdraft fees.
When you avoid an overdraft service, you protect yourself from overspending even when you don't have money. Remember that the bank may still decline an overdraft transaction when you don't have enough funds in the linked accounts. Keeping away from overdraft services empowers you to live within your means and budget.
Practical steps you can take to prevent overdraft fees include the following:
The most effective to avoid overdraft fees on your accounts is to exit the overdraft coverage. With no overdraft coverage, the bank will always decline your card whenever you don't have sufficient amounts in your account to cover an ATM withdrawal or debit transaction.
While you won't be able to complete a transaction, you'll also incur no overdraft fees.
When you don't use a credit card or check to make payments, you don't have to worry about having insufficient funds to clear the transaction. It's easy to forget about a check you wrote two months ago. You may end up spending money that would have been sitting in your account for the bill to go through.
Normalize making cash payments for goods or services to avoid spending money already designated for a check.