Overdraft protection | How it works and how to avoid fees

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Overdraft protection

Overdraft protection fees add to the insults of the breach by charging you for the overdraft on your account. And unfortunately, these fees are rarely nominal.

Instead, the average overdraft fee is $ 34. That can add up quickly. especially if you are already struggling to make ends meet

Once you’ve added overdraft fees to the mix, catching up on your finances can be even more difficult.
Fortunately, there are ways to avoid overdraft fees. Let’s examine what you need to know.

What is overdraft protection?

First of all, it is important to understand what overdraft protection is. Essentially, overdraft protection covers your transaction when you overdraw your checking account.

The upside is that you don’t have to deal with the embarrassment of a check or a declined debit card. In addition, a missed payment has no consequences, such as: B. a late fee.

But there become likely to be an overdraft fee. In order to get you the money, most banks will charge an overdraft fee. The exact amount depends on the bank. But you’ll likely be looking at something close to the $ 34 average.

How to avoid overdraft fees

While overdraft protection can be handy, the fees aren’t cause for alarm. With that, let’s cover all the ways you can avoid overdraft fees.

Work with a bank that doesn’t charge overdraft fees

The most obvious solution is to work with a bank that doesn’t charge overdrafts. That’s true! There are some banks that don’t even charge overdraft fees.

That said, you can avoid the risk of an overdraft fee altogether by working with the right bank. Here are some of the top banks that won’t charge you overdraft fees:

  • Carillon. Chime is committed to toll free banking that does not include overdraft fees. In addition, the bank offers the SpotMe service, which covers overdrafts up to $ 100. Find out more about Chime in our full review.
  • Varo. Varo does not charge any overdraft fees and offers two services. First, overdrafts are just declined. Second, if you qualify, you can get a line of credit that allows you to process overdrafts based on your amount. You can learn more about Varo in our full review.
  • Axos Bank. Axos Bank offers an interest-bearing current account with no overdraft fees. Check out this account here.

Moving to a new bank could be the right way to avoid overdraft fees forever. Fortunately, it won’t take more than a few minutes to set up your account with any of the above banks. Would you like more affordable banking options? Check out all the popular online banks for 2021.

Link to your savings account

Depending on your bank, you may be able to link your savings account to cover any overspending on your checking account. Although it will take you a few minutes to set up the link, most banks will not charge you for this service.

If you choose this route, don’t forget about the withdrawal limits on your savings account. The federal government only allows you six savings transfers per month. If you exceed the limit on the number of transfers you may have to pay a different fee.

Turn off overdraft protection

If you turn off overdraft coverage, the bank will no longer cover overspending. Instead, the transaction will simply be rejected if you don’t have enough funds in your account. While this can be a little inconvenient, it ensures that you are never struck with heavy overdraft fees.

Set a low balance warning

You can avoid overdraft fees by constantly checking your account balance. But that can get old quickly. Fortunately, you can set up alerts for low account balances.

If you receive a notification, avoid using your debit card until you add more money to that account.

Apply for an overdraft facility

Some banks offer customers a line of credit to avoid overdraft fees. With this revolving line of credit, you would likely be paying interest on the balance. However, if you can pay off the fee quickly, the interest rate may be cheaper than an overdraft fee.

The good news is that most banks offer this option. The bad news is that you will likely need a solid credit score in order to unlock this opportunity. Does Your Credit Score Need A Boost? Check out our guide on how to improve your credit score.

Use a prepaid debit card

Don’t want to use a debit card but want to stick with plastic that doesn’t incur overdraft fees? A prepaid debit card might work for you.

You can use a prepaid debit card like a normal debit card at the point of purchase. However, the card itself is not linked to checking accounts. Instead, you deposit money into the card to use when needed.

Most prepaid debit cards have no overdraft fees. However, if your account does not have enough funds, the transaction will be declined. For more information on prepaid debit cards, see our full guide.

The bottom line

Nobody wants an overdraft protection fee on their account. Fortunately, there are many ways you can avoid these unnecessary costs. In addition to all of the ideas above, try to build a buffer in your checking account and keep an eye on your expenses and bank balances throughout the month. Check out our favorite budgeting apps to make cost tracking easy from your phone.

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