Overdraft fees can occur when your checking account does not have enough money for a purchase or payment you try to make. These charges can add up, especially if you overdraft your account frequently.
Best practices to avoid overdraft fees
- Use direct deposit if your employer offers it as a way of getting your paychecks into your checking account faster. That way, you are less likely to be in a situation where you overdraft your account because you have not had time to deposit your paycheck yet.
- Keep track of the balance in your checking account. It may seem old-fashioned to keep a checkbook register, but this is the best way for you to know exactly how much money you have available at any given time. It can take several days for electronic bill pay withdrawals to go through, and even longer for paper checks to clear. Note them in your checkbook register, along with ATM withdrawals and debit card transactions. Then check your balance before making a purchase or writing a check to ensure you have enough money to cover it.
- Avoid using your debit card to rent a car, buy gas or check into a hotel. Each of these merchants will often place a hold on your account for an amount larger than you actually end up spending. The hold may cause you to overdraw your account accidentally because you were not aware that the money on hold was unavailable to spend.
- Keep a buffer in your checking account all the time. Even just keeping a minimum $100 account balance will prevent you from triggering an overdraft when you spend a little more than you planned. Just be sure to think of the last $100 as unavailable. Quickly deposit money to get back up to $100 if your balance drops below that amount.
- Set up an alert so your bank will notify you if your checking account balance falls below a specified amount. If you receive the notifications on your phone, you can instantly adjust your spending to avoid making an overdraft on your account and incurring a fee.
- Carefully manage joint accounts and consider separate accounts if you cannot coordinate your spending habits. If one of you is making purchases the other does not know about, this could easily lead to triggering an overdraft. Unless you can agree on how to track your purchases and maintain clear communication about the joint account balance and scheduled payments, you may be better off with separate accounts.
- If you do trigger an overdraft, deposit money into your account as soon as possible to pay the fee, get a positive balance again and avoid any additional fees.
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