The key to developing smart spending patterns is awareness. You should have at least a general understanding of how and when you are spending your money and why.
How To Avoid Bank Overdraft Fees
Banks usually charge a fee whenever you overdraft your account. Depending on the institution, you may not receive a fee for overdrafts in amounts under five dollars, but for one of this amount or more, you certainly will get hit with a penalty charge. While bank overdraft fees are burdensome and costly, however, they can be easily avoided with just a few simple actions on your part.
Monitor Your Spending
First of all, you want to keep track of your purchases and automatic payments, as monitoring your spending is the most effective way of avoiding overdraft fees. Either manually input transactions and deposits into your check register or purchase an online finance software program that allows you to compile and manage transactions online. Free versions of your favorite finance software may be available, so do your homework.
Input each transaction and deposit into the check register or online spreadsheet in order to accurately manage and calculate your spending patterns. Be certain to input automatic payments such as credit card bills and insurance payments, which are often paid on a quarterly or semi-annual basis. It is such irregular payments that can often arrive unexpectedly and cause multiple overdraft fees.
Take Advantage of Overdraft Protection
If you can, you should also definitely take advantage of overdraft protection, which most major banks offer these days. This paid service allows a bank to remove funds from a secondary account — usually a savings account — in order to cover purchases that are made using the primary checking account and that would otherwise be declined for insufficient funds. Fees for this service are nominal and generally much less than the cost of an overdraft fee, which can be as high as $35.
Best of all, the bank will remove the funds to cover your purchase without you having to do a thing. Once the transaction is complete, you will see a nominal charge for the overdraft protection service plus confirmation that the original transaction was approved for payment. You will also receive electronic notification of the new balance in your savings account. There is no limit to the number of times the bank will remove funds from one account to cover a transaction posted to another. However, it is advantageous for you to ensure that this service is only needed at select times. Otherwise, you could pay as much as $10 every time the bank covers a transaction with funds from a secondary account.
Take Advantage of Waivers
Oftentimes, banks are willing to waive one to two overdraft fees per year as a courtesy to customers. While some banks program their computer system to automatically credit overdraft fees back to an account, other banks require customers to make a verbal or written request. If your bank is one of the latter, you must contact the institution and request a courtesy waiver of any overdraft fees you want refunded. Expect the money to appear in your account within one to three business days.
Keep Overdraft Fees to a Minimum
Overdraft fees are costly — not only in terms of money, but in terms of accessibility to new banking accounts. Banks report excessive overdraft fees to the Chex System, a database that compiles and distributes consumer banking information. Financial institutions rely on the Chex System to determine which new applicants to approve for new accounts. Having multiple negative reports could make it difficult for you to open a new checking account on your own in the future, with the result being that you may be required to obtain a co-requester.