Banking

Can You Overdraft A Wisely Card

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 5 minute read

The overdraft charge and its close relative, the nonsufficient funds fee, are two of the most prevalent forms of bank costs (NSF fee). Overdraft fees are charged by most financial institutions when a customer’s account balance falls below zero due to a negative check or ACH transfer. The typical cost of an overdraft in the year 2021 was $33.58.

These costs can add up quickly: If you make two unsuccessful payment attempts, you will incur two costs. If your account balance drops below zero due to an NSF fee, your bank may assess an overdraft fee.

Thankfully, certain financial institutions, including CIT Bank1, are completely doing away with overdraft fees. There are still measures you may take to prevent overdrawing your bank account, even if your financial institution levies such fines.

How to Avoid Overdraft Charges (Nonsufficient Funds)

The cost of banking services may be kept low. Banks are doing away with checking and savings account fees more frequently. Still, it’s your responsibility to avoid overdraft and insufficient funds charges. Following these procedures will guarantee that you will never have to pay an overdraft charge again.

  1. Check your account balance on a regular basis.

To avoid an overdraft, it’s important to keep track of your account balance. Be vigilant in monitoring your balances. If your bank account balance drops below a certain threshold, you should either refrain from making any more purchases until your next payday or add cash to your account from another source.

  1. Create a Low-Balance Alert

Depending on your account balance, most modern banks may send you a notification through email or text message. Set up an alert for when your balance falls into a “risk zone,” such as $500, so you can replenish your account or hold off on spending until your next paycheck arrives.

  1. Maintain a Reserve in Your Checking Account

I really dislike the fact that banks charge ongoing fees, but I can see why they do it. They’re a financial incentive for maintaining a savings cushion. If your bank still charges a monthly maintenance fee for your checking account, you should switch to a free checking account immediately. Consider it a portion of your savings for unexpected events.

  1. Enroll in Overdraft Protection

You may get overdraft protection from your bank if you want to. In order to participate in such a program, you must link your checking account to a different type of account at the same financial institution. If you overdraw your checking account, the linked account will be debited to offset the difference.

Be aware that certain financial institutions (like CIT Bank) will charge you a fee for requesting an overdraft transfer, while others (like TD Bank) will provide this service at no cost.

  1. Opt Out of Overdraft Protection

To avoid paying excessive overdraft costs, you may decline overdraft protection offered by your bank.

Avoiding overdraft fees may come at a cost if you decide to forego this protection. The bank will not process your payment if the amount is greater than your available balance. That can cause you more stress and expense in the form of late payment penalties and check-bouncing charges from the person you were supposed to pay. When your debit card is declined, you often won’t incur any fees from your financial institution.

If your current bank charges NSF fees or does not provide overdraft protection, you are probably better off finding a new bank.

  1. Look for a bank that does not charge NSF fees.

It used to be nearly impossible to locate a financial institution that did not impose NSF fees, but that has all changed in the past decade. Many conventional financial institutions, including banks and credit unions, have been pushed to reevaluate their income models as a result of disruptive innovations such as fee-free internet banking.

True free checking accounts that don’t charge monthly maintenance, ACH fees, bill pay costs, or NSF penalties when you overdraw your account are simpler to locate than ever before. If you’re looking for a free checking account, try CIT Bank.

  1. Use a Prepaid Debit Card

Some debit cards issued in the present day function in a manner analogous to a conventional checking account. They can forego the cost of using an ATM and accept direct payments from companies and governments. Online banking, bill pay, mobile banking, check deposits, and ACH transfers are just some of the additional services provided by many banks today.

Some even provide benefits commensurate with credit cards, such as rebates on expenditures made using the card.

More and more prepaid debit cards now include overdraft protection. If your debit card doesn’t have this feature, it will function normally and refuse the transaction if there isn’t enough money in the account to cover it. Even though it’ll be uncomfortable and embarrassing to have to ask someone else to cover your share of the dinner bill, at least you won’t have to worry about incurring an overdraft fee.

  1. Attempt to have the fee waived.

First-time overdraft charge evasion policies are common at financial institutions. If you give them a call and inquire gently, you could get a pleasant surprise.

On the other hand, repeat offenders shouldn’t count on being treated kindly. Financial institutions will not be as forgiving if they notice a history of bad financial behavior, and they will retain records of any costs they have waived in the past for you.

Repeated overdrafts are a warning sign that your budget and spending habits need to be reviewed. You might want to rethink your spending habits and make some adjustments to your budget in order to put aside more money in emergency savings.

Bottom Line

While individual bank fees may seem insignificant, they may soon pile up. Overdraft fees may be a big problem for folks who don’t have a lot of extra money lying around.

You should get things rolling by picking a bank that doesn’t charge you anything over your regular checking account minimum, including overdraft protection and NSF fees. Next, examine your income, expenditures, and savings patterns in detail.

Repeatedly going over your account limit is a sign that you need to reevaluate your spending habits and either cut back or increase your emergency fund balance. Even more so if your income or outgoings are inconsistent, in which case a larger cushion is necessary.

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