Protecting Your Checking Account from Overdraft Charges

In a twelve-month period last year consumers paid an estimated $32.5 billion in overdraft fees. Chances are most Americans at some point have over drafted their checking account and paid costly fees to bring their account back into the green. 

There are strategies you can put in place to prevent any more overdraft charges on your checking account. Don’t let the high cost of overdraft fees affect your bank accounts by utilizing easy to implement strategies into your money management. 

Since 2010 banks have had to have explicit consumer consent for “opt in” to charge overdraft fees on single debit card purchase or ATM withdraws. This consent isn’t required for checks or pre-authorized electronic payments, or recurring charges. A bank can decide in those cases whether to cover the transaction or not and to charge a fee for the service. Yes, it is a system where consent is required for some overdrafts but not for others. In order to avoid overdraft charges, firstly, don’t opt in to the service. If you don’t opt in and your debit transaction is declined you shouldn’t be charged a fee. 

Always keep a “cushion” in your account. A hundred dollar cushion would protect most consumers from overdraft as the majority of overdrafts are for relatively small transactions of $20 or less! Keep track of your bank balance and your recurring charges to prevent running low on funds in your account. 

Automatic payments cause some consumers issues. They forget that a payment is coming up and they don’t have the funds in their account to cover the upcoming charge. Keep your automatic withdrawals on manual so you can authorize and keep track of your cash flow. Calendar the due date for all your recurring payments so you remember when you need to initiate the payment with your bank. 

Another way to protect your checking account is to link it to your savings account or a line of credit that the bank may withdrawal from for overdraft coverage. However, use this strategy carefully or you may run into overspending very quickly. Some banks also charge a fee for transferring money from one account to another so you may incur charges for this protection. 

Check with your banking institution to find out if they offer overdraft alerts. Many banks now have notifications systems to alert you of incoming charges so that you can transfer funds to cover the charge before your account becomes over drafted. 

Finally, if you do incur overdraft fees pay them as soon as possible to prevent more overdraft charges from the bank. Most banks charge multiple fees for the same overdraft the longer your account is in a negative status.