How to Avoid Overdraft Fees

Overdraft fees are a big money maker for the banks and people can get into some serious trouble with them if they aren’t careful. Some of the bigger banks make millions of dollars every day off these fees and it is important to know how they work in order to avoid paying hundreds of dollars.

What is Overdraft Protection?

Now there are a couple different forms of overdraft protection but the most common one is where you swipe your debit card for 10 dollars but you only have 5 dollars in your account. This pays the 10 dollars but charges a 25-35 dollar fee at most institutions. Now this is for every swipe of the debit cards. A couple of small purchases can add up to hundreds if left unchecked.

Opted in or Out

When a person opens their account they have to choose if they would like overdraft protection on their account or not. However, not many people know how it works and opt into it without really knowing what they are getting into. A person can always opt out of this service at any time.

A side note. ACH purchases which are basically auto transfers or payments that come out of an account with an account and routing number will still charge a fee and are separate from debit and ATM transactions. This is usually a good service to keep just because even if someone is opted out it will charge a “return item fee” for the same amount. The fee is charged either way so it is usually better to keep this service because fees might be charged by the merchant or payee if an item is returned on the other end as well.

How to Use it

Most people don’t know this but when opted in to overdraft for debit and ATM transactions, it allows the person to withdraw cash out of the ATM up to 470 dollars in most cases. This allows extra money for small purchases if you are in a bind. This will still take the account negative and still needs to be paid back in 30 days in most cases or there is a risk of the account being charged off. This is not good and affect the ability to open accounts in the future.

Overdraft Lines of Credit.

These are one of the best products that financial institutions have to offer that no one knows about. Many places do not want customers to know about this because overdraft fees are a big moneymaker for them.

A checking account with an overdraft line of credit will just pull money from the credit line if the account ever is missing sufficient funds. This saves so much money. For a small line of credit the person will end up paying a couple dollars if not cents in interest every month it has a balance as opposed to hundreds of dollars in fees. This also allows transfers to the checking account if you need a little cash and pulling cash out if you ever have a purchase that only accepts cash.

Do the research. Some banks have line of credit products that are designed to charge fees every time they are used. They may also have extremely high interest rates. It is always important to ask questions and know about fees and charges involved.

Credit Unions Vs Banks

After working in the financial industry I was able to do a lot of research on products and fees first hand. While banks have certain benefits, they are generally a lot more aggressive with fees and charges. Credit Unions tend to have a lot better products with a lot lower fees especially for younger people. Credit Unions are a lot more generous about fee refunds, interest rates, and acting in the best interest of their members. This is just something to consider for those that don’t have an account at a Credit Union.

Thanks for reading and if you have any questions feel free to ask them below!