How to Avoid Overdraft

By keeping a ledger you can prevent overdraft fees.

You can avoid overdraft fees in a variety of methods. Overdraft fees are bank charges for a transaction that the account does not have the funds to pay. This can happen for several reasons, such as an electronic paycheck did not get to the account timely or you wrote a check but forgot about an automatic electronic payment. Both the bank and the vendor of the check or electronic charge can charge you a fee for the transaction.

Instructions

1. Keep detailed records of all transactions. Write down the ATM transaction into your ledger and deduct the amount when entering. Do the same for any electronic online purchases. Write down the amount and number of all checks

2. Check your account balance daily. Sign up for the bank's online website or use the phone method. See what transactions have cleared and mark these in your ledger. Determine if the balance coincides with the one in your ledger.

3. Mark all automatic transactions into your ledger each month. Schedule the payment the day before it is due to ensure that if it occurs in the early morning hours the money is available.

4. Round all transactions up to the dollar. Build a small buffer zone so that there is always more money in the account than you realize

5. Reconcile your monthly statement with your account ledger. Match each deposit on the statement to the ledger. Do the same for each debit from the statement

6. Sign up for overdraft protection. Complete the form for your checking account and turn it into the bank clerk. Give yourself the protection in case you make an accounting error.

7. Open a savings account in the same bank. Place a $100 in the account. Link your checking account to your savings account so the account automatically pays any overdrafts.

Tips & Warnings

• Ask your bank to waive the overdraft fee if it is a one time mistake.

• Know the difference between your actual balance, which is the money you have, and the available balance, which may not include all outstanding checks.

References

• Rederal REserve Board: Protect Yourself From Overdraft and Bounced-Check Fees
• Federal Deposit Insurance Corporation: Your Guide to Preventing and Managing Overdraft Fees
• Get Rich Slowly; How to Avoid Bank Overdraft Fees; J.D. Roth; June 2008