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Accidents happen, but bank overdraft fees can be an expensive mistake. Taking the right precautions can help you steer clear of overdraft fees altogether. The internet is full of advice to help you avoid overdraft fees, but some of the tips aren't practical for everyday life.
On that note, we’ve compiled six actionable and straightforward ways that you can avoid overdrawn account charges, including ideas to help you get those fees reversed.
1.) Use automatic notifications
One of the leading causes of overdraft is because the account holder forgot about a debit or withdrawal. When you find yourself losing track of what payment is going where and how often, you might overspend.
Depending on your bank, you may be able to sign up for notifications and get access to online reports on every detail of account activity. Automatic notifications and online reporting are just a couple of services that your bank offers. But you can also check out our recent post on the best budgeting apps. Thoughtfully designed apps like Mint, YNAB, or Wally work in conjunction with most bank apps and will help you keep tabs on where every dollar is going.
If the digital way isn’t for you, that’s fine. Go back to the good old chequebook, or the still-highly-praised "envelope method"
2.) Decline Overdraft Protection
Consider saying no to overdraft protection. Possibly. Depending on your credit score and spending habits, overdraft protection may be an excellent idea and worth the fees. Some banks even offer small amounts of overdraft protection for free.
When you sign up for overdraft protection, you permit your bank to cover your transactions and withdrawals after your account balance reaches zero. You’ll be charged a fixed overdraft fee for this privilege, and many banks add more overdraft charges if you don't address your negative balance for several days.
If your account overdraws, you might be unaware that you're now technically spending the bank’s money. Fees could start to pile up if you continue making purchases!
If you are approved for overdraft protection, banks reserve the right to decide if the protection covers a purchase. If the purchase is too large, they can still bounce it, which could lead to high fees for you. If you’re not comfortable with this, then you have ten days to opt out after signing up (by phone or in writing).
The Financial Consumer Agency of Canada has a great education page for anyone who wants more information on legislation around overdraft protection, including your rights and responsibilities.
3.) Use cash for daily purchases
Regularly tracked and automated spending is a sign of good financial health. You should set up your account for monthly necessities like rent, insurance, cell phone bills, and utilities. Put these planned expenses on autopay. That way, you know exactly when they’re coming out and how much.
For smaller, daily purchases, like food and social meetups, use cash. Compared to flimsy plastic cards that we just have to tap on a machine to make a purchase, we tend to be more frugal with cash bill denominations. As the old saying goes, “out of sight, out of mind.” You never want your finances to be so out of mind that you forget how much you're spending.
For more information on how to allocate your budget and plan for monthly savings, check out our post on the 50-20-30 budgeting rule.
4.) Use a prepaid debit card
If overspending is a concern, switch to using a prepaid debit card for your daily purchases. With a prepaid card, it's your own money that you're spending, and when it runs out, that’s it. There’s no overdraft danger; just a zero balance. And you can simply reload it when you’re ready.
5.) Link to another account
Ask your bank about linking your checking account to another account, such as another checking account, a savings account, or even a credit card. If your checking account is in danger of entering a negative balance, money will be automatically transferred from this second account to pad your checking account and keep it in the green.
There’s usually is a fee for this overdraft protection transfer service, but if it’s cheaper than overdraft coverage fees you might want to consider it. If you link to a credit card or line of credit, there might be more fees and interest to pay, so see if you can link to your savings account instead.
6.) Request getting overdraft fees waived
There, by no means, is a sure way to get incurred fees reversed, but if you’ve never been into overdraft before, and they’re genuinely once-in-a-blue-moon, most banks will grant you one or two “in good faith” reversals, especially if you’re a long time customer. There's no harm in asking. Worst case scenario? Your bank says no, and you have to pay it anyway.
Little tips and tricks like the ones above can add up to help you stay out of debt and start saving for the things that matter most to you. If you’re not there yet, Spring Financial can help. We offer installment loans of up to $35,000 to help you reach your goals, and the application takes just three minutes to complete!
