Avoiding Overdraft Fees
Whether you have had a checking account for years or you just recently opened one, a fee that should have been discussed with you is the overdraft fee.
This fee can also be called non-sufficient funds or bounced check fee. Your financial institution may even have a fee for both, one for the non-sufficient funds item and another for overdrawing your account.
How does one avoid overdraft fees? Don’t allow your account to become overdrawn. This is easier said than done as a person’s cash flow might be tighter in these tough economic times.
In addition, the increased use of electronic transactions (e.g. debit card purchases, direct deposits, automatic payments, etc.) makes it more difficult keeping up with account balances.
Here are some ways to help avoid overdraft fees:
- Keep your checking account register (balance) up-to-date and pay special attention to your electronic transactions. For many, the debit card and electronic payments, including bill pay, has replaced checks. If this is the case for you, ask your financial institution if they can provide you with an ATM/Debit card holder with a transaction register instead of using the traditional check register.
- Be aware that there can be a delay in the posting of electronic transactions. Many times people get their balance from their financial institution and assume (based on past experiences) that debit card purchases that were made days earlier have posted. While it is true most debit card transactions post fairly quickly, sometimes there can be a delay. The reason for the delay could be as simple as a glitch with a merchant’s credit card processing system.
- Try to set up your bill payments and other pre-authorized electronic payments so that there is an adequate (3-4 days) buffer between electronic deposits if your cash flow is tight. Electronic direct deposits (or payments) that you have authorized may not always post on the same day each month due to an unexpected processing errors and/or communication data line failures. While your employer doesn’t want a delay in the posting of your payroll, they may miss the deadline to submit their electronic deposit, which could result in a delay in posting.
- Consider setting up overdraft protection from your savings account or an overdraft protection line of credit. Some financial institutions may charge for automatic transfers from your savings account to your checking account. A small overdraft protection line of credit may be beneficial to you. The interest rate on these lines of credit are often higher than a signature loan but many times the interest you pay for a short term overdraft line of credit advance is less than the overdraft fee. Please make sure that this is case by asking if there is an annual fee for this service and/or fees for line of credit advances. Your financial institution may offer what is called “courtesy overdraft protection.” If you do sign up for one of these plans, make sure that you understand the fees that are could be incurred. If you think a checking overdraft plan is for you, please sit down with your financial institution representative and see what is available.
- If your financial institution offers online and/or mobile banking alerts, you can set up a “low-balance” alert if you choose. You are notified by either text message or email that your balance is below a certain level (the level is chosen by you.)
Good money management is the key to avoiding overdrafts, and knowing the tools and products available to you through your financial institution can significantly help you.
Editor’s note: Fidel Gutierrez has worked for Los Alamos National Bank for 25 years and is a Senior Vice President.
- Look for Money IQ every Wednesday in the Los Alamos Daily Post.