Most over-drafted bank accounts are the product of a simple mistake. Unfortunately, this honest mistake comes at a high cost to account-holders: many banks charge overdraft fees of around $35 per incident, and sometimes higher.
Even a single charge can make a dent in your finances—and several overdrafts in a row can dig you into a deep financial hole. Fortunately, these fees can be avoided through better money management and a proactive response when you’re worried new charges may overdraft your account.
Read on to learn more about the risks of bank overdraft fees, as well as practical tips to avoid these costly charges.
The Consequences of Your Bank’s Overdraft Fees
While a single overdraft fee won’t ruin your finances altogether, overdraft fees are expensive and can potentially lead to other, bigger problems. The risks of these charges include:
Money deducted from your bank account. Overdrafts take your hard-earned money out of your account—and this loss of money can put you at greater risk of additional overdrafts.
Additional charges due to multiple overdrafts and/or bounced checks. A single overdraft, and subsequent overdraft fee, can lower the available balance of your bank account and result in additional overdrafts—as well as returned check fees.
Negative marks on your credit report. If banks report overdrafts to the credit bureaus, your credit score could drop as a result.
The closure of your bank account. If overdrafts are excessive, or put your account in a negative balance for too long, your bank may decide to close the account.
Reporting a negative balance to collections. If the bank account is closed due to a negative balance from overdrafts, you may be pursued by collections, and have that debt reported to a credit bureau.
Difficulty opening a new bank account. Overdrafts and account closures could scare off other institutions from giving you a bank account, making it difficult to perform even basic banking and money management tasks.
How to Avoid Overdraft Fees From Your Bank
A number of different options are available to help you avoid overdraft charges to your account—even if you accidentally overspend your available balance. Here are preventative steps you might consider:
Take advantage of overdraft coverage options offered by your bank. If you have a savings account or other account at your bank, some overdraft protection programs will automatically cover overdrafts with funds from this account, saving you the cost of an overdraft fee.
Check your bank account balances daily. Some banks also offer low balance alerts to send text messages or other notifications when balances dip below a certain threshold. This may be useful in helping you avoid overdrafts.
Maintain a minimum balance that offers financial cushion. Instead of simply keeping your account in the black, give yourself a minimum balance of $100, $500 or even $1,000 to reduce the risk of an overdraft.
Track checks you have written from your account. Make sure you record check-based payments and keep enough money in your bank account to cover them when cashed.
Make timely deposits to keep account balances high. Avoid sitting on paychecks and other deposits, as delayed deposits into your account could increase the risk of an overdraft.
Take out an overdraft loan. If you need a little influx of cash to avoid an overdraft, this small loan can offer a lot of value and save you from much higher banking fees.
Can You Ask Your Bank for an Overdraft Fee Refund?
Depending on your bank and your history as an account-holder, you may be able to request a refund of the fee charged for an overdraft.
In general, financial institutions will be more likely to refund an overdraft fee if you can convince them that the fee was the result of a mistake on the part of the bank, such as a deposit incorrectly credited to your account. But some banks may be willing to refund an overdraft if you have an otherwise strong track record of keeping your account in good standing.
Ultimately, though, these refunds are at the discretion of the bank. To avoid these fees, your best strategy is to manage your account balance to avoid overdrafts in the first place.
When to Consider an Overdraft Loan
If you believe your account is about to be over-drafted, a short-term loan can help you cover those expenses and avoid high fees until other deposits and payments are delivered to your account.
These short-term loans, sometimes called overdraft loans, can range in value from less than a hundred dollars to a few thousand dollars, and they can represent a significant cost savings when compared to the overdraft fees you might otherwise pay. Lenders offering these short-term loans are often able to process applications and issue funds quickly—sometimes within hours—to help you cover your account charges and spare yourself these fees.
If you’re worried your account is about to be over-drafted, don’t wait until the fee is deducted from your bank account. Contact a lender today to see if an overdraft loan can save you money.
