It is one of the worst feelings in the (financial) world.
Most important points
- Overdraft fees cost Americans an average of $250 per year.
- Being overdrawn too often can damage your banking profile and make it difficult to open new accounts.
- Look into overdraft protection, budget and consider switching to a bank that doesn’t charge overdraft fees.
Have you ever experienced the drop in your stomach that comes from accidentally overdrawing your checking account? I have. It’s been several years since it last happened to me, but I still remember the “Oh no” feeling it gave me. If you spend more than what is in your checking account, you have just overdrawn or overdrawn the account. Maybe you didn’t realize you didn’t have enough money to cover a check you wrote, or didn’t notice that your balance was low before you swiped your debit card. Now you have to pay a fee, on top of a negative account balance.
Overdraft fees cost Americans an average of $250 a year, according to research from the Consumer Finance Protection Bureau. They fall under the umbrella of checking account fees commonly charged by banks, and often cost around $35 each. Overdrafts can add up quickly, and if your account is overdrawn on a regular basis, you could end up with ChexSystems, a reporting agency that collects information about Americans’ banking habits. That could make it more difficult to open new bank accounts in the future. However you look at it, overdrafts are bad news. If you keep running into an overdraft on your checking account, here are some tips to break the cycle.
Talk to your bank
If overdrafts become a problem, you’ve probably already heard from your bank. If you haven’t, I suggest calling that customer service center or checking the bank’s website to see what options you have. Many banks offer overdraft protection programs; usually they involve linking your check to another account (often a savings account), so if you overdraft your account, the amount you are short of will come out of the linked account to cover it. Fees may be charged for this service, but will be less than the standard overdraft fees. If you’ve accumulated some overdraft fees and are panicking because your account is negative, see if your bank is willing to waive some or all of the fees. They may be willing to work with you if this is an unusual event and you are normally a reputable customer.
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Check your balance regularly
If you’re not already in the habit of regularly checking your bank account balance, it’s worth getting this. These days it couldn’t be easier to check your bank account to make sure everything is in order. Many banks have robust internet presences and mobile apps that you can access from anywhere with Wi-Fi or cellular coverage. Failing that, you can call your bank’s customer service number and get an update on your balance. Many banks also offer SMS and email alerts, which are sent if your balance falls below a certain amount. I have a set for my accounts that warns me if I drop below $100.
Leave yourself a buffer
In these times of inflation, it’s a good idea not to keep too much extra money in your checking account. That said, leaving yourself a buffer can be very helpful for your peace of mind. I try to aim for around $100-$200 just in case I get a little surprise bill or something is taken out of my account when I least expect it (for example, my car and renters insurance bill is set to pay automatically and it can be hard to predict when the insurance company will actually take it out).
Track your expenses
In addition to checking your balance regularly, living on a budget can be a great way to keep track of where your money is actually going. If you’ve never made a budget before, don’t be intimidated; there are great budgeting apps to get you started. I’m a bit old fashioned, so in addition to my simple spreadsheet budget, I also rely on a spiral notebook that acts as a checkbook of sorts (I don’t write checks very often). When I get paid, I write down my bank account balance and then calculate how much I’m left with after paying bills and transferring money to my high-yield savings account. This way I always have an idea of how much money I should have in my account.
Consider switching banks
For some banks, current account costs are even a thing of the past. There are a few banks that have stopped charging them altogether, and others have reduced them from $35 to $10. If your bank hasn’t jumped on this bandwagon yet, consider switching banks to one that does did.
Increase your income
If you find yourself running out of money between paychecks, look into increasing your income. This could be in the form of a side job, a raise at work, or even a new full-time job. Living paycheck to paycheck is incredibly stressful, and in addition to taking a toll on your finances, it can also wreak havoc on your mental health if you’re always worrying about having enough money. Trust me, I’ve been there.
It is possible to break the overdraft cycle and keep your checking account in the black. Try some of these tips and see how much better you’ll do.
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