Overdraft fees can quickly add up and strain your finances. Fortunately, there are several strategies you can use to avoid them and save money. One effective approach is to set up account alerts to notify you when your balance falls below a certain level. Another option is to opt-out of overdraft protection services, which prevents the bank from authorizing transactions that would overdraft your account.
1. Pay Your Bills on Time
Use a calendar, scheduling app, or reminders to ensure your bills are paid promptly. Many lenders allow you to adjust due dates so they align with your pay schedule. Make a list of all your recurring payments and their due dates. Review your budget and income to see if all your monthly expenses fit within your financial means. If not, prioritize which bills are most important to avoid late fees or penalties.
2. Set Up Low-Balance Alerts
Low-balance alerts are notifications you receive on your phone or via email when your account balance dips below a certain amount. These alerts can also notify you of large purchases or unusual account activity, helping you stay on top of your finances.
Another useful tool is overdraft protection, which allows the bank to transfer funds from another account (like a savings account or credit card) if a transaction exceeds your checking account balance. Some banks charge fees for this service, while others don’t. For example, BECU offers budgeting tools like Money Manager and Spending Limit Alerts to help you manage spending and avoid overdraft fees.
3. Opt out of overdraft service
Overdraft fees can be expensive for low-income adults. But you can avoid them by being proactive with your checking account.
To do so, you can opt out of overdraft protection, which allows banks to cover ATM withdrawals and debit card purchases even when there are insufficient funds in your account. Or you could link another account so funds automatically transfer over when needed—both methods allow for quicker resolution should an overdraft arise. Consumers who opt out of overdraft service cannot be charged fees for one-time debit card and ATM transactions.
4. Link your savings account to your checking account
Most financial institutions provide the option to link your savings account and your checking account, which allows for funds to automatically transfer between accounts if there are insufficient funds in either account to cover transactions. Some may charge a transfer fee, but it typically falls well short of an overdraft fee.
Always bear in mind that this solution only works effectively if you carefully monitor and set low-balance alerts on your account balances. Otherwise, overdrafting should still be avoided to the greatest degree.
5. Ask for a small line of credit
If you’re seeking a personal line of credit, begin your search with your bank or credit union. They may offer overdraft protection plans that allow for access to funds without incurring overdraft fees.
A line of credit is similar to a loan, except it’s revolving, so you can borrow as you need up to a set limit. Keep in mind, however, that interest will accrue on whatever money is borrowed; additionally, some lenders levy maintenance and inactivity fees; it is wise to read over all terms thoroughly prior to signing any document.
6. Don’t use your debit card unless you have enough funds in your account
Banks and credit unions commonly offer overdraft protection services that allow customers to cover purchases and withdrawals when their account balance drops below zero, though this often comes with an additional fee.
Avoid these fees by regularly monitoring your bank account, particularly when making large transactions or paying bills online. Set low-balance alerts so you’ll know when it gets low; or opt out of overdraft services or protection, which would prevent your financial institution from covering recurring or single debit card payments and could save money.
7. Set up automatic transfers from a savings account to cover overdrafts
Your financial institution may provide services that allow you to link a savings account, credit card, or line of credit with your checking account so if there’s ever an overdraft situation in the account, funds can be transferred from that protecting account into it to cover it.
Overdraft services may come in handy when mistakes have been made or when your paycheck did not deposit as expected; however, overdraft service should not encourage spending beyond what your checking account holds; consider opting out or searching for an overdraft fee-free option instead.
8. Don’t use your debit card unless you have enough funds in your account
Avoiding overdraft fees is easy if you keep track of your balance and remain informed. Check your account online, via mobile banking apps or your phone, and always ensure there’s enough money in the account to cover checks, bill payments, debit purchases, and ATM withdrawals before making them.
Opting out of overdraft service means any ATM or debit card purchases or deposits you don’t have the funds for would be declined instead of incurring fees. Also consider getting a small line of credit that could help cover potential overdraft issues in case they arise.
9. Don’t overspend
You can manage your account balance by signing up for low-balance alerts from your financial institution.
Prioritize needs over wants when setting spending limits. Create weekly or monthly limits for discretionary expenses and withdraw cash or use a designated debit card; this will help avoid costly overdraft fees in the future. Visit Northwest Community Credit Union today to explore their overdraft protection solutions!
10. Keep track of your spending
Tracking expenses is key to budget success, whether using an Excel spreadsheet, an app, or just an envelope full of cash. By keeping track of where your money goes and identifying areas where improvements could be made.
Try tracking your spending daily or weekly—whatever works for you best—using an electronic or paper budget tracker, spending logbook, or both to gain an in-depth picture of your monthly spending habits and gain motivation and insight. Doing this can be both motivating and eye-opening!
