The Truth About Overdraft Fees and 5 Ways Around It


The main reason an overdraft fee happens is because 40% of the biggest banking systems in the US allow debit transactions to be reordered, with the largest amount first. Some banks will even categorize transactions into sub-batches and then re-order these batches to debit the largest amount first. Only 20% of banks in the US don’t allow its customers to overdraw on ATMs or debit transactions.

The median fee imposed on an overdraft is $34, even on transactions as low as $20! It is no secret that overdraft charges are some of the biggest sources of profit for banks. In 2017, a record of $34 billion was collected from overdrafts alone. This means ten billion transactions were charged with an overdraft fee!

Transactions made on an account are easy to remember but the order of when it will reflect against your balance is hard to guess. You may withdraw $70 from the ATM today but still get an overdraft fee of $34 even if the balance clearly states that you have $200 left. This would be because you made a purchase two days later which debited $150 from the account. Do you still follow? Neither does the Americans majority.

Here are five legal ways you can avoid paying overdraft fees

  • Opt Out of Overdraft Coverage

In 2010, the Office of the Comptroller of the Currency announced a new regulation that prohibits banks from charging an overdraft fee if a client has not consented to an overdraft protection program. That means you can explicitly opt out of it when you apply for a bank account or card, so make sure to read the fine print. Be warned though, there are banks that still charge a non-sufficient fund fee.

  • Apply for a Checking Account with No Overdraft Fees

These types of checking accounts are often available through internet banking facilities only and don’t earn interest. However, this inconvenience is balanced out by the fact that you do not lose money from the simple fact that you do not have enough of it.

  • Link to Another Account

Ask your bank if it is possible to link one account to another bank account. Doing this will offer a safety net for your account should it lack the funds to continue a transaction. It will just borrow from the balance of the linked account.

  • Use Finance Tracker Apps

Financial blog sites like ODA can point you to the best apps to help you track your spending and finances so that you can avoid overdraft charges and non-sufficient fund fees. Not only that, but it also offers advice from banking experts on the best practices, best banking facilities, and products.

  • Set Up Regular Balance Alerts

Online banking facilities allow their customers to receive alerts about their remaining balance. Use this to your advantage. If possible, you can even set it to send you a text or email when your balance reaches a certain amount.

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