We all know the feeling.
You’re at the checkout counter. You’re swiping… swiping… The card reader repeats the same message: “Transaction declined.” The cashier starts to shift. The vibes are off.
“It’ll work,” you say. “I have money,” you say. You don’t.
Soon enough, you’re back in the aisle, returning your protein shake and feeling high-key embarrassed.
So what happened?
You didn’t have enough funds in your account. No sweat – it happens to the best of us. When your checking account doesn’t have enough money for a transaction, it blocks it. See, banks offer a service called overdraft protection. Long story short, if you don’t have enough money for your debit card purchase, the bank pays for you. In some ways, it can make you feel invincible. You’ll walk away with what you want, even if you don’t have enough.
Like all things finance, it’s never that simple. The bank is a financial institution, meaning-- they’ll do what they can to recoup whatever possible.
Like all good things, this convenience comes with a price: an overdraft fee.
In this article, we’ll explore just what an overdraft fee means, how much it’ll cost you, and what you can do to avoid them in the future.
An Overview of Overdraft Fees
Imagine you have $14 left in your checking account and spend $20 on a burger and a shake. Rather than denying your transaction, the bank pays the amount left over, in this case, $6.
However, your bank doesn’t just charge you a difference, but an extra price as well. This is where the overdraft fee comes in.
How Much Really is an Overdraft Fee?
Like the rest of the financial world, overdraft fees continue to rise. Every bank has a different price. Here’s a list of the most popular banks, from highest to lowest.
- Wells Fargo Bank: $35.00
- Chase Bank: $34.00
- Bank of America: $35.00
- US Bank: $36.00
- PNC Bank: $36:00
- BB&T Bank: $36.00
- Regions Bank: $36.00
- SunTrust Bank: $36.00
- The Huntington National Bank: $37.50
- TD Bank: $35.00
- Fifth Third Bank: $37.00
- KeyBank: $34.00
Currently, they average out to $33.58. Additionally, these banks may charge extended overdraft fees, or more money for all the days without paying it off. Yikes.
Will Being Charged Overdraft Fees Hurt My Credit Score?
You can take a deep breath. Bank-charged overdraft fees don’t affect your credit score, as long as you pay them off in a timely manner. But this doesn’t mean you should rely on overdraft protection regularly.
Overdraft fees are pesky and end up costing you more money which could hurt you in the long run. Don’t pay unnecessary fees where you don’t have to. It’s not worth it.
Below we’ll explore the best ways to get out of paying those fees to save you a little more money.
How to Avoid Overdraft Fees
The nice thing about overdraft fees is that they’re avoidable. With planning and a budget, you can keep the peskiness away to begin with.
Keep Track of your Account Balance
You can avoid overdraft fees by paying attention to your account balance. When you are running out of money, don’t make the purchases unless you absolutely need to. It’s better to use the money you know you have so as not to make a risky gamble in the long run.
Create a Budget
With so many monthly fees and purchases, it can be nearly impossible to keep track of your finances. Having a strict budget is like a flashlight in the dark: you can keep sight of what you can and can’t spend. When you have a track, you’ll feel less guilty splurging on yourself!
Visit our Budgeting 101 blog for a wealth of information on how to budget. Pun intended.
Say No to Overdraft Protection
While you risk having an embarrassing encounter, it’s better than owing the bank and losing money in the long term. Take the risk. If you get denied at the checkout counter, so what? It happens to everyone. There’s no shame in putting that product back on the rack and coming in another day.
Set up Notifications for Low Balances
Have your bank notify you whenever your account gets dangerously low. This might give you the reminder you need to slow down your spending.
Link to Another Account
Some banks offer the option to link your checking account to another, like a savings account. In cases where you overdraw your account, money will be transferred from the account with available cash to the account to cover. Moving money from one account to another typically costs $10-$12.
Is it great? No. But it’s a steal compared to an overdraft fee.
Your bank may also let you transfer from a credit card account, but this will likely come with an additional high-interest rate, as well as your transfer free. Credit cards are tricky. When you can stick to checking accounts… you should.
Talk to your Bank
If your overdraft was an honest mistake, try to call your bank and talk to their representative. At the end of the day, you’re their customer, and they stand more to gain by helping you than receiving compensation. Worst case scenario, they say no. Best case, they wipe the overdraft fee, and then you know not to make the same mistake.
Keep Your Finances Strong: Avoid Overdraft Fees
Overdraft fees may sound slight, but they can add up. The consumer financial protection bureau states that overdraft fees… “constitute the majority of the total checking account fees that consumers incur.” Once you go beyond your wallet, it can be hard to recover, especially as the dues keep climbing.
Finances are hard to get used to, and oftentimes fees can feel like a way to penalize you when you’re down. Though tough, it’s essential to avoid them whenever possible. Stay alert when it comes to your banking and your funds; it’ll help you in the long run.
At EXTRA, we offer a debit card that helps make responsible purchases. If you make a purchase over your limit our card will stop the payment. A declined transaction is better than the cost-heavy alternative.