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Overdraft charges – the fees your bank charges you when you don’t have enough money in your checking or savings account to cover a purchase or withdrawal – can be real killers when it comes to your family’s finances:

• The charges are substantial: a new record high is the average overdraft penalty in the U.S. charged by many banks, credit unions, and other financial institutions were more than $33 per overdraft in 2021.
• Many people are hit with these charges: banks and other financial entities collected $13.4 billion in these fees in 2020. (This was a decrease from $17 billion in 2018.)
• Overdraft fees are hard to avoid because consumers can be hit with several of them in one day, depending on their spending.
• They “benefit” a consumer because rather than declining a transaction (your purchase still goes through), the bank charges you a fee to cover it. This can appear “helpful” on the surface; after all, if you needed to buy groceries that day because you didn’t have enough food for dinner that night, your family can still eat. But that can activate even more fees and end up causing your family financial worry.

How you may find yourself charged with an overdraft fee

Let’s say you need to pay your rent of $1200. You check online and see that you have $1400 in your checking account, more than enough to head to the bank to get enough cash to go to your landlord to pay your rent.

But your spouse shopped for groceries for the week. That same day, you spent $150 and took your child to the dentist for another $75, both without speaking to the other. You remember the $75, but you didn’t know about the $150 until you got home after paying the landlord and talking to your spouse.

The day after you take out the $1,200, the two other charges come through, and you’re short $25. Yet even though your account is missing “just” $25, the bank still charges you the overdraft fee, so now you’re really out more than $50 (the $25 not in your bank account as you had thought, plus your overdraft fee).

It’s easy to see how overdraft fees can occur and how they can add up.

How to make sure you’re never charged an overdraft fee again!

• Discontinue overdraft protection of your debit card(s) with your financial institution.

Your bank is the one to decide whether reject (it won’t let the payment you made go through) or to cover it (pay it and then charge you an overdraft fee).

But you can opt out of its overdraft coverage program. This means that the bank can’t cover one-time debit or ATM transactions or charge non-sufficient-funds fees.

It can cover checks and recurring debit transactions without checking with you first. Yet because debit card transactions are the top “culprit” when it comes to causing overdrafts, this could help you not incur overdraft charges.

Critical to remember: you won’t be able to buy things with your card if you don’t have the funds in the account.

Keep a close eye on your account balances.

This may mean checking your balance every day. And we mean EVERY. DAY. Without fail.

This is truly important if you’re not the only one with access to the account (a husband and wife, for example).

Technology has made doing so very easy: you can check at an ATM, on the Internet/via an app, with a phone call, or even visiting a branch.

• Ask your bank to send you a text or email when your balance falls below a certain amount.

You choose the amount, whether It’s $250 or $25. This will help you either make sure you put more money into the account ASAP or stop using it until you can do so.

• See if your bank has a daily cutoff time/deadline and add enough to the account to stop the overdraft fee from actually occurring.

If you see that you don’t have enough funds to cover an upcoming transaction and you know when the bank checks your balance each day, you could rush to the bank to place cash in it to cover your shortfall.

You’ll need to use cash for this or transfer some money from another account you have with this particular bank. Any other transfers you make from another financial institution won’t cut it. Neither will a check from another institution, as it needs to “clear,” which takes a few hours at least and a day or two at most.

• Consider getting a prepaid debit card.

If you find that you’re receiving overdraft charges frequently (even if it’s just once a month), you may want to load a prepaid debit card with cash and use it until the money’s gone. Once it’s gone, you can’t use it until you put more cash “on it.”

Many people think that getting a second- or part-time job can help with their overdraft woes.

And they definitely can so long as you follow the tips above. After all, earning more money doesn’t automatically mean no more insufficient funds charges if you don’t watch your spending.

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