Overdraft fees are less than ideal, and tend to impact the people who need the money most.
However, they are avoidable.
What are overdraft fees?
If you go to the store and pay with your debit card, but don’t have enough funds to cover the purchase the bank covers the transaction. However, in letting the bank cover part of your purchase, you’ve now over-drafted your account and will have to pay for it. Learn more about it here.
About 9% of consumers overdraw their accounts more than ten times in a year. This accounts for about 80% of overdraft and non-sufficient fund fees collected annually.
You heard that right, you have to pay for not having enough money in your account. Overdraft fees are increasing too. In 2000, overdraft fees averaged around $23.74. Today, the average is closer to $33.58.
Banks are profiting off of Americans that live paycheck to paycheck. According to a report conducted by the Financial Health Network, $12.4 billion were collected in overdraft fees in 2020.
Some banks are ending the overdraft practice, like Capital One. Other banks, like Bank of America, are just reducing the fees. They are reducing it from $35 to $10 starting in May.
However, not everywhere is ending the practice. Most banks have a fixed fee, regardless of how much you overdraft your account. If you overdraw you account by $1 or $100, you will still owe the bank the same amount. It’s usually around $30 for an overdraft fee.
How can I avoid overdraft fees?
There are a few options to consider avoiding overdraft fees if you’re concerned or tired of paying the bank money you don’t have.
- Opt out: Your bank can’t charge you overdraft fees unless you have agreed to them. If you choose this route, your transaction will just be declined if it exceeds the amount of money in your account.
- Link your savings and checking accounts: As long as you have money in your savings account this could be a good option. If your accounts are linked and there isn’t enough money in your checking, it will automatically draw from your savings.
- Link your checking account to a line of credit: Some financial institutions will let you link your checking account to a credit card. You will probably still have to pay a fee and interest, but it is typically cheaper than overdraft fees.
- Sign up for low-balance alerts: Many banks offer text or email alerts for low balance. You can set it up to notify you when your account drops below a certain amount that you determine.
- Open a checking account without overdraft fees: Some banks offer checking accounts that don’t charge overdraft fees at all.
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