Strategies for Avoiding Overdraft Fees
An AskMetafilter user wonders: What are your strategies for avoiding overdraft fees?
I earn enough money to pay all my bills and eat out a bit — it’s the most comfortable I’ve been (financially) in four years. I do not earn enough to have any buffer between paychecks, however. I try to avoid cash and pay for as much as I can with a debit card, via the web if at all possible. Every month it seems that I have miscalculated yet again and the overdraft pile-on ensues.
Speaking as one who has been there, overdraft fees are an indication that you’re not tracking your finances as closely as you think you are. Tracking finances only through receipts, or only through your bank’s web site is inadequate. You need to keep a separate ledger (perhaps a checkbook ledger) or use a piece of software (such as Quicken) in order to track every expense. If you live paycheck-to-paycheck, and fail to track every expense, you will experience overdraft fees from time-to-time. It may be more convenient to only track your expenses via your bank’s web site, but if you do that, you need to realize there are always going to be checks and other transactions “in process” that don’t show on the web site, and consider overdraft fees the price you pay for adhering to such a system.
There are other ways to compensate for chronic overdrafts, of course. Banks offer overdraft protection, which is usually linked to a secondary account (such as a savings account). This is an excellent option for those who repeatedly suffer overdraft fees but are unwilling to record every transaction as it happens. Many people create an artificial buffer in their account. At one time, I had a $100 in my checking account that I would not allow myself to touch. If my balance fell below $100, I just stopped spending. I wasn’t overdrawn in the bank’s eyes (and thus did not receive a fine), but I was overdrawn in my eyes. This worked until I spent that $100.
Overdrafts are a clear indicator of poor financial health. If you suffer from chronic overdrafts, it’s time to evaluate your spending behavior. Build a buffer and track expenses.
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Liz Pulliam Weston said,
October 31, 2006 @ 10:23 am
Good for you for starting this blog–there are plenty of great hacks to share. On overdraft protection: folks need to know that some banks and credit unions offer “bounce protection,” which sounds the same as overdraft protection, but isn’t. The financial institution signs you up automatically, charges you a per-check fee and sometimes a per-day fee, and many even add the amount of the bounce check “protection” to your balance so that you can’t tell when you’re about to overdraw your account. I wrote more about it here:
http://articles.moneycentral.msn.com/Banking/BetterBanking/DontBeDupedByBouncedCheckProtection.aspx
Obviously, this can be a pretty bad deal for consumers. Real overdraft protection makes a lot more sense.
k34h2qf9vy2 said,
February 1, 2007 @ 4:49 pm
Many banks offer overdraft protection by offering a credit line, claiming that if you bounce a check you’ll pay less in interest than the overdraft fees. What they don’t tell you is that the interest rate are as high as credit card interest but at least with a credit card you don’t pay interest until after the bill is due.
It seems like the banks are using this as a gimick to lure people who are on the edge of having financial problems (ie people who have frequent overdrafts) into becoming dependent on credit which will practically gurantee that they do get into financial trouble. Or, they’re trying to recapture people who had problems with credit cards and are trying to give up credit.
Disgusting.