4 Easy Ways to Avoid Overdraft Fees

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KEY POINTS

  • Banks charge overdraft fees if your account balance dips below $0.
  • There are ways to avoid getting hit with these expensive fees.
  • These techniques can include keeping spare money in your checking account.


Don't end up paying overdraft fees and draining your bank account.

Overdraft fees can be a huge and unnecessary expense. Unfortunately, you get hit with overdraft fees when you don't have enough money in the bank but you try to use your debit card or get money out of your account anyway. Your actions can drop your account balance below $0, which triggers these fees and potentially other penalties.

It can be a challenge to avoid overdraft fees if you're running short of cash. And, sadly, being hit with this added cost can only make your situation worse if you already didn't have enough money. The good news is, these four tips can help you to ensure you never end up trying to spend more money from your bank than you have available.

1. Keep a financial cushion in your checking account

Overdraft fees are only charged if you drop your balance below $0. So if you keep plenty of extra money in your account, this can't happen to you. If it's possible for you to do so based on your financial situation, try to put an extra $500 or $1,000 in your account that you never touch. This money will always be there in case you accidentally try to take too much out of your bank account.

2. Use an app that keeps track of your balance

Not everyone has a lot of extra money to keep in their bank account. If you don't want to tie up a ton of cash by keeping a cushion in your account, you will have to keep more careful track of your spending. An app can help you do that.

You can use your bank's app to monitor exactly how much is left in your account and you can often opt in to be alerted when your balance drops to a dangerously low level. Other third-party money management apps such as Mint can also be programmed to provide a warning that your account balance has dropped to a pre-set limit.

3. Do most of your spending on a credit card

Using your debit card often can increase the chances of an overdraft because you could end up accidentally forgetting about some charges or checks you wrote and using the debit card for a purchase you can't cover.

If you use your credit card to charge purchases instead, you won't end up taking money out of your bank account you don't have. You can control when you pay your card balance and can check to make sure that you have the money in your bank account before you make a credit card payment.

The risk of this approach is that if you carry a credit card balance, you could end up owing a lot of interest. Over time, interest charges could end up costing more than an overdraft fee would have. But if you live on a budget and keep track of the spending on your credit card, then you can make sure you don't spend more than you're able to pay off. You can then repay your balance at a strategic time, such as when you get a paycheck, so you will be confident you have the money in the bank to cover it.

4. Pick a bank that won't charge overdraft fees

Finally, the easiest and most foolproof way to avoid overdraft fees is to pick a bank that simply does not charge them. There are many great banks out there that have eliminated this fee, and if you select one, you won't need to worry that a single mistake could cost you a ton of cash.

Any or all of these four tips can help you avoid overdraft fees, but picking the right bank may be the best and most straightforward approach so it's definitely worth thinking about.

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