How to Avoid Overdraft Charges

Banks charge overdraft fees.

Paying overdraft fees to your bank is like lighting your hard-earned cash on fire. Banks often charge between $25 and $50 per transaction when your bank account drops below zero. Stop giving away your money and follow steps to ensure that you never drop into the red again.

Things You'll Need

• Checking Account
• Savings Account
• Computer (or Internet Access)

Instructions

1. Call your bank. Most banks offer their customers online access to their accounts. Find out if your bank offers this service. Online access to your bank account allows you to review each transaction you have made. More important, online access gives you an instant snapshot of your checking balance. If your bank does not offer online access, you must keep a balance register on paper or consider finding a new bank that offers more services.

2. Open a savings account. Even if you are in debt, you should open a savings account and begin putting a small amount of each paycheck you receive into savings. If your employer offers direct deposit, you may be able to ask the company to deposit into savings a consistent dollar amount or percentage of your wages each pay period. The money you put in savings will also serve as a backup cash reserve from which you can draw money to prevent overdrafts in your checking.

3. Link your checking and savings account. Your checking account is probably set up to automatically assess overdraft fees when you drop below a zero balance. Visit your local bank branch and ask about linking your checking and savings accounts so that when checking drops below zero, the money is automatically transferred from your savings account to cover the deficiency. The banks may still charge a fee for such transactions, but they are generally much cheaper. Some banks also allow you to link a bank credit card.

4. Know your limits. Utilize online account access to check your bank account balance multiple times a day. If you have an incidental expense or have to write a check that cuts a little too close to the bottom line, move some money from savings to checking in advance to avoid even the smaller automatic withdrawal fees.

Tips & Warnings

• Creating a household budget will protect you from spending more money than you earn in a month. Reviewing a monthly bank account statement will help you see how you typically spend your money on food, clothing, automobiles, housing and incidentals.

• Ask your personal banker about hidden fees when setting up automatic withdrawals or savings accounts. Higher-interest savings accounts often have a "low balance" penalty that is assessed if your balance drops below a certain amount.

References

• Daily Finance: Bank Overdraft Fees Still Plague American Consumers