The definition of overdraft is “a deficit in a bank account caused by drawing more money than the account holds.” The common term is “bouncing a check” although you can do the same with a debit card. When you bounce a check, you will end up with either a returned check for NSF (non-sufficient funds) or with an overdraft fee.
These overdraft fees can add up very quickly. There are several ways you can lessen the chances of getting hit with overdraft fees, including overdraft protection.
Overdraft limits are a total amount over the amount in your checking account that you can overdraft. For instance, both the Chase overdraft limit and the Wells Fargo overdraft limit depends on how much money you generally maintain in your account. You will get a $35 overdraft fee for up to 3 transactions per day. Some banks will charge an overdraft fee for every day your account remains overdrafted.
Avoiding an Overdraft Fee
There are a number of ways to keep from accruing annoying and expensive overdraft fees.
The first and most obvious is to keep your checkbook balanced. Happily, you no longer need to use a check register if you use an online program like Mint or an app provided by your bank. Check your balance at least once a day.
Try automatic payments. You can specify the day that the money leaves the account, so it happens on payday. Or sit down and pay bills on our computer, setting the dates to coincide with paydays.
Balance your checkbook once a month and review the bank statement for errors.
Keep a small balance in your account, sort of emergency gas reserves. Don’t touch that cash if at all possible.
Many financial institutions will send an email alert if your balance drops below a certain specified amount. Sign up to get these alerts.
Understand your “bounce coverage” or “courtesy overdraft protection.” You do need to sign up for these, but sometimes the small print allows the bank to enroll you. Sometimes you will not only get an overdraft fee but with the “protection” you’ll have other fees charged on top of the overdraft fee.
Tie your checking account to another account, like a savings account, credit card, or line of credit – called overdraft protection. If you overdraft the checking account, money will be transferred, for a small fee, to cover the overdraft. If you have a line of credit protection, you’ll also pay interest on the overdraft. Credit card may treat these as cash advances and charge a stiff interest rate on them. Chase overdraft protection covers debit cards, which some institutions do not.
Avoid “blocks” on debit cards. These are placed by gas stations, hotels, and car rentals on a debit or credit card. This block may inadvertently cause you to overdraft your account.
Try using cash for small purchases instead of your debit card. Little purchases add up more quickly than you may expect.
If you overdraft, call your bank and transfer money into your account. If you ask politely, they may waive the overdraft fee.
What Not to Do
If you overdraft your bank account and don’t pay it back, first you will continue to accrue fees and fines. Second, your account may be frozen. And third, if you write checks when you know you do not have money in the account, you are committing check fraud and can be charged and convicted of either a felony or a misdemeanor.
Balance your checkbook, use apps and notifications, and look into some type of account linking to cover bounced checks. Overdrafts are expensive and a bit of effort can keep you from paying those fees.