Falling below the balance of your bank account can trigger a cascade of expensive fees at a time when you can least afford them. An overdraft fee charged by your bank could be as much as $37 per occurrence, meaning that two $5 charges at fast food restaurants could end up costing you around $84. By charging these fees instead of just denying the charges at the point of sale, the banks are raking in a lot of money – $32 billion in revenue in 2012 alone, according to economic research firm Moebs Services. Fortunately, there are some simple practices that you can use to protect yourself from these expensive overdraft fees.
Decline To Enroll In Overdraft Coverage
Recently enacted laws have prohibited banks from automatically enrolling their customers in overdraft coverage, in which the bank will pay the charge that caused the account to go below its balance and add a hefty charge to the account for the service. Today, you have to physically opt in to the service for the bank to pay transactions that your account has insufficient funds for. Opting out of the service means that debit card transactions will be denied instead, except for in a few specific instances. However, this does not cover checks and automatic bill payments, which may still be processed even if you have a negative account balance once the transaction is complete.
Pad Your Checking Account
An effective way to protect yourself from any type of overdraft is to pad your checking account with a cushion of additional money is not spent or added to your balance. Most overdraft are due to the person simply misjudging the amount of money in their bank account by less than $50 and using their debit card for minor purchases. By keeping a financial cushion of $100 or more in your checking account, you will be able to avoid most overdrafts.
Use Automatic Alerts
Most banks have a wide variety of online tools for their customers to use to manage their bank accounts, including account alerts that let you know when your account balance is getting low. Depending on your typical spending habits, you can set an account alert that will send you an email or a text message when your account falls below a certain balance. This allows you to adjust your spending accordingly or make a deposit into the account to prevent overdrafts from occurring.