How to Avoid Overdraft Fees in 6 Steps
It can be tempting to dip into a free overdraft facility on your card every so often but be warned. You can get caught out. In this post, we’ll set out how to avoid overdraft fees and what you can do to protect your financial health.
A primer on overdraft fees
Most people fall victim to things like overdraft fees because they don’t know exactly how it works. Of course, everybody knows what an overdraft is, but do you really? Before we detail and tell you how to avoid overdraft fees, a quick primer wouldn’t hurt.
What is an overdraft fee?
An overdraft fee is what a bank charges you whenever it pays for a charge that exceeds your account balance.
For example, you make a $100 purchase at a grocery store, but you only have $80. Rather than decline the transaction, your bank will approve the transaction and charge you an overdraft fee. Think about it as a steep, short-term interest loan—depending on how much over you went.
What’s the big deal about overdraft fees?
That doesn’t sound so bad, does it? You get saved from an embarrassing situation at a small charge. So what? The devil is in the details.
The problem with overdraft fees is that most people aren’t aware that they have overdraft coverage on their bank accounts. A lot of people who know about it aren’t conversant with the specifics of the charges.
Overdraft fees aren’t one-time fees. You’re charged an average overdraft fee of $34 for every single transaction you make after you have overdrawn your account. Meaning, if you stop at three stores to make a purchase, you will instantly rack up a $102 fee, $34 per transaction, in addition to the amount you had overdrawn.
This is precisely why you need to learn how to avoid overdraft fees and build a healthy financial mindset.
How to avoid overdraft fees in six steps
You surely don’t enjoy losing money, regardless of your financial situation. This is why no conversation on how to avoid overdraft fees is complete without these six steps.
1. Opt-out of overdraft coverage
While overdrafts are meant to help you avoid embarrassing situations, the steep fees attached to that convenience make it a rather significant and unnecessary expense.
The most effective technique on how to avoid overdraft fees is to opt-out of the service. Bear in mind that your bank will decline your transactions if you don’t have enough money in your account. You have to make sure to keep an eye on your finances.
2. Track your transactions
Your enneagram core motivations and enneagram types core motivations might affect how you treat money and the way you manage your finances. Living without the ‘luxury’ of overdrafts means that you need to pay special attention to your financial transactions. You’ll probably never need to worry about having insufficient funds in your checking account if you’re intentional about planning your income and expenses.
Setting up a budget with irregular income is an excellent way to stay ahead of your finances.
3. Sign up for bank alerts
A simple way to help you stay on top of your finances and significantly reduce your chances of needing overdrafts is by signing up for bank alerts. Set up SMS or email alerts for every transaction you make.
You can also define the rules and set low-balance alerts to notify you when your balance exceeds a specified threshold. Either way, it’s a valuable tool in your how to avoid overdraft fees toolkit.
4. Fund your account immediately after an overdraft occurs
They say the best time to plant a tree was 20 years ago, and the second-best time is now. Once you realize an overdraft has occurred, the first thing you should do is transfer money into your overdrawn bank account.
Depending on your financial institution, you might be able to escape paying overdraft fees if you fund your overdrawn account before the set deadline or daily cut-off time. At the very least, you will avoid more overdraft fees if that doesn’t work.
5. Use overdraft protection
Overdraft protection is a great option when considering how to avoid overdraft fees. This contrasts with overdrafts, where your bank covers overdraws on your behalf by automatically loaning you the money at a steep fee.
It involves the bank transferring money from one of your other accounts to cover an overdrawn amount.
For example, if you made a purchase and didn’t have enough money in your checking account to cover it, then your bank would automatically transfer the balance from your savings to your checking account to cover it.
This service usually comes at a fee, but it’s much lower than the usual overdraft fees.
6. Get a MyConstant Debit Card
If practices like budgeting, setting up bank alerts, and other steps already suggested seem like a drag to you, then MyConstant Debit Card might be the best option for you.
The MyConstant Debit Card is a prepaid debit card that works like regular debit cards without linking to a checking account. This makes it impossible to incur overdraft fees, as prepaid debit cards generally don’t have overdraft services. It doesn’t end there. MyConstant’s Instant Access account allows you to earn 4% APY right up until you’re ready to make a purchase.
The MyConstant Debit Card’s advanced flexibility, privacy, and security, in addition to the fact that you can leave your money in a high-interest investment account until you’re ready to spend, significantly reduces the risk of incurring overdraft fees.
Implementing these tips early will help prevent you from losing money and trying to go through the lengthy process of asking for a refund on your overdraft fees. With the MyConstant Debit Card, you transcend beyond trying to avoid overdraft fees to becoming an investor and building wealth.
Sounds interesting? Get your MyConstant debit card today and start spending and investing.
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