What are overdraft fees and how to avoid them?

When making a purchase that leaves you with a negative account balance, the bank will pay the difference for you at the expense of paying for an overdraft fee. These fees are a hassle for you as they can extend for several days.

Overdraft fees are applied when you don’t have a balance left in your account to cover a payment; as a result, your bank will cover the difference for you as part of your overdraft protection service.

Banks charge approximately $34 as an overdraft fees. Annually, people who are enrolled in overdraft protection services pay almost $450 in overdraft fees, which is more than people who didn’t register in them.

What is an overdraft fee?

Primarily, an overdraft occurs when a purchase or a withdrawal results in a negative account balance .

Although, the financial institution will cover the difference for you at the expense of paying a fee. Still, you have to pay back the amount of money that your bank lent you to cover the actual difference of your account balance and your purchase.

The federal government made it mandatory for financial institutions to ask for your permission before letting you enroll in an overdraft protection program. These overdraft fees may not be applied to automatic payments or checks.

Take note though, individual financial institutions may send back cheques or unpaid transactions and mark them as “nonsufficient funds.” In this scenario, you will still be made to pay a fee, just like an overdraft fee. However, if your bank denied a transaction, you will not be charged at all.

How can you avoid them?

Overdraft fees can undoubtedly push back a bit of your budget if left unchecked. But don’t worry, as there are some strategies that you can take to avoid them making a dent in your account balance. Here are some tips to avoid them.

Signing up for online banking

Online banking is one of the great benefits that most financial institutions offer their clients. Signing up in one of these will let you monitor your account’s activities, as well as track and check where your money is being spent.

Watch your account activity regularly

To avoid having overdraft fees, make sure to check your balance periodically to see if you have enough credits in your account balance. Most overdraft fees happen when you have $24 on your balance left. Also, watch your expenses to avoid going in the negative.

Set up alerts

Most financial institutions will alert you if your balance has dipped below a certain amount. With these alerts, you will be notified as to how your money was spent, and if it’s time to add more credits in your account balance. With this, having enough money for purchases is a surefire way to avoid overdraft fees.

Ask your bank for an alternative

There are banks that offer an option for overdraft protection.  As an example, some banks will let you link your checking account to your savings account. This will give you access to funds if one of your accounts doesn’t have enough credit in them. To do so, you might still have to pay for a fee, but it tends to be smaller than that of an overdraft fee.

Depositing and transferring

When you know that you have just triggered an overdraft fee, depositing to your account or transferring balances might prevent your bank from charging your overdraft fee. Check the cut off time of your bank, or a specific time to deposit before they close to avoid having a negative balance for the day.

Even then, if you haven’t made it on time, you can still do a transfer. If you leave a negative balance for a few days, your overdraft fee might also be extended.

Keep extra money

The best thing to do to prevent invisible fees is to make sure that you still have enough money in your account balance.

If possible, always check your balance before making a big purchase to know if you have enough funds. Keeping a little extra on your account balance will help you avoid overdraft fees as much as possible, especially in emergencies.


Paying overdraft fees can be a source of headache, especially if you don’t want any more fees to be charged to your account. Things that you can do to prevent this all together is to check your financial institution’s overdraft policy, always keep track of all your expenses, big or small, and stay within your budget. Being proactive in your finances will not only prevent having additional money taken out from you, but will also let you successfully manage your money in the long run.

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