Protecting your checks and debit card transactions against return or rejection due to insufficient funds sounds like a good idea. Otherwise, most businesses will charge you $25 to $50 for a returned check, and may refuse to accept your checks in the future. A rejected debit card could leave you high and dry when you need it the most. The down side is the outrageously high overdraft fees that you pay for that peace of mind, in most cases around $35 or more depending on where you bank. A simple math error on your part could easily skyrocket the price of your morning treat at the local Starbucks to $40.
That unexpected $35 ding for each overdraft adds up quickly, and can throw your budget into a serious tailspin before you know it. There are alternatives to high bank overdraft service fees that will allow you to take back control of your finances, and keep more of your money for the better things in life, like a good cup of coffee.
1. Keep your checkbook balanced, and don’t forget to record your debit card activity.
This sounds simple, but it’s easy to forget to record an item. Get into the habit of deducting the amount of each check at the time you write it. Keep the receipts for all debit card charges in your wallet until you get home, and update your checkbook register as soon as you can. You can create your own “overdraft protection” fund for free by rounding up the amount of checks and debit card transactions when you record the new balance in your register. This cushion can save you from the frustration of paying a $35 overdraft fee to cover a 39-cent simple math error.
2. Ask your bank or credit union about linking your checking and savings accounts.
Funds from your savings account will be transferred automatically to pay any checks and debit card charges that your checking account can’t cover. While many financial institutions charge for this overdraft protection, it’s usually much cheaper than paying an overdraft fee.
3. Do not opt for overdraft service.
Banks are required to automatically opt you out of overdrafting your account through your debit card, for card purchases and ATM transactions. It is then your choice to opt in to this service, or not. Some people may choose to do so and prefer paying an overdraft fee, instead of having an important transaction declined. Others will not, and their card would get declined in the event of insufficient funds. This is the smart choice for those not very good at keeping track of their balance, or to simply add that extra layer of protection. Keep in mind that you can still overdraft your account through certain transactions such as writing a check or making an electronic payment. The bank cannot decline those transaction at time of payment, so you need to accept full responsibility in such case.
4. Avoid costly simple mistakes by monitoring and tracking your money electronically.
Most financial institutions offer free online banking that will allow you to check your account balance 24/7. Also, most will provide you with many online tools to help you track and coordinate all of your transactions. You can set up alerts to receive text messages or emails as your bills become due, or if the balance falls below a certain threshold set by you. Monitoring and managing checking accounts has never been easier, so be sure to take advantage.
5. Shop around for free overdraft protection.
While most banks charge for overdraft protection, a number of credit unions still offer checking accounts with free overdraft protection. It pays to shop around, and financial institutions are no exception.
6. Pay your bills manually and arrange for paycheck deposits automatically.
Having recurring bills paid automatically is a great convenience in some ways, but can lead to costly problems if you forget to have enough money in your checking account to cover them. When you pay bills the old fashioned way, you can control when each bill gets paid, matching your payments to the available funds in your checking account.
Automatic deposits, on the other hand, almost always make more sense than driving to your bank or credit union to deposit a paper check. Aside from the convenience, direct deposited funds will generally be available much quicker than a paper check, which may be subject to a hold of a few days before the funds are released.