How to Avoid Overdraft Fees

Many checking account holders, particularly college students and low income earners, fall victim to overdraft fees. These fees are charged to the account holder when the account's balance falls below zero, and the banks must cover the amount owed. Overdraft fees are generally attached to free checking accounts and cost consumers billions of dollars each year.

Instructions

1. Research the checking account offered. Free checking accounts are profitable to businesses that, in turn, reap large profits from overdraft fees. Many times, these fees are hidden within the small print of the signing contract, so read the contract carefully.

2. Sign up for overdraft protection. Usually the protection plan stipulates that money will be taken from your savings first, and then from a line of credit given at a fixed rate. However, overdraft protection generally requires an account with a minimal balance and that the account-holder pass a credit check.

3. Check your balance frequently if you don't qualify for overdraft protection. Take advantage of account information offered over the phone and the Internet. Record all of your transactions in a ledger.

4. Pay careful attention of the difference between your available balance versus your current balance. The latter reflects the amount in your account minus any pending transactions. Always mediate your spending based on the amount in your ledger in order to avoid confusion and potential fees.

5. Make all of your deposits through the bank during the hours in which the deposit will be processed. Usually this is before 4 p.m., Monday through Friday. This guarantees that the money is credited directly into your account.

6. Run your check card through the credit system and not through the debit system. Not only do vendors often attach hidden fees for using the debit system, but these charges are immediately suspended from your current balance. The credit system, by contrast, debits your account in the order in which the charges were made on the next business day. Thus, your account activity will more accurately reflect your ledger.

Tips & Warnings

• If you write a check, it is not be reflected in either the current or available balance for days. Always deduct this amount in your ledger and assume it's gone.