Have you ever checked your account and realized that you spent more money than you had? If so, you’re not alone. According to NPR, U.S. financial institutions rake in around $15 billion every year from overdraft fees.
An overdraft fee is what your financial institution (FI) charges you when you spend more money than you have in your account. That means if you buy a $5 coffee when you have $4 in your account, you’ll end up paying $40 for it. Ouch!
But don’t worry — there are ways to avoid overdraft fees and keep more of your money where it belongs: in your pocket. In this blog, we’ll share with you 8 tips on how to avoid overdraft fees and stay on top of your finances.
What Are Overdraft Fees?
Let's start by understanding what overdraft fees are and how they work. Essentially, overdraft fees are charges imposed by your FI when you spend more money than you have in your account.
For example, imagine you have $100 in your checking account, but you attempt to withdraw $150 from an ATM. In this situation, your FI will cover the shortfall for you, but it will also apply an overdraft fee.
There are two types of overdraft fees: standard and extended. Standard overdraft fees are incurred when your account goes into the negative due to a transaction. On the other hand, extended overdraft fees come into play when your account remains negative for a certain number of days. The specific amount you pay for each type of fee will vary depending on your FI and the type of account you hold.
How To Avoid Overdraft Fees
The good news is that you have the power to avoid paying those pesky overdraft fees. With these simple strategies, you can keep more of your hard-earned money in your pocket:
Opt Out vs Opt In
One of the easiest ways to avoid overdraft fees is by opting out of overdraft services. These services provide coverage for your transactions when your account balance runs low. However, they come at a cost— a hefty overdraft fee.
By choosing to opt out of overdraft services, you can prevent your FI from approving transactions that would result in a negative account balance and subsequent fees. Instead, these transactions will be declined or returned without any charges. You can opt out of overdraft services by contacting your FI directly. If you have a City & County Credit Union account, you can update your settings by calling or visiting a branch.
Courtesy Pay vs Overdraft Protection
Another effective way to avoid overdraft fees is to select the right type of overdraft service that suits your needs. There are two main options: courtesy pay and overdraft protection.
Courtesy pay is when your FI covers your transactions even if you have insufficient funds in your account. This can help you avoid declined payments or bounced checks, but they do charge you a fee for each transaction.
On the other hand, overdraft protection involves connecting your checking account to another account, such as a savings account or line of credit. When your checking account balance is low, money is automatically transferred from the connected account to cover your transactions. While there might still be a fee associated with the transfer, it's typically lower than the regular overdraft fee.
Set Up Alerts
Alerts are an invaluable tool that keeps you informed about the happenings in your account. They can notify you when your balance is running low, when you make a significant purchase, when you receive a deposit, when you withdraw money, and more. By setting up alerts, you can stay vigilant about your account activity and avoid spending more than you have or overlooking bill payments.
Balance Checkbooks
Balancing checkbooks is the process of comparing your records of transactions with the records of your statement and making sure they match. This can help you catch any errors or discrepancies on your account and prevent you from spending more than you have. You can balance checkbooks manually by using a paper register or electronically by using an app or software.
Use Cash
Cash is king when it comes to avoiding overdrafts. When you pay with cash, you know exactly how much you have and how much you can spend. Plus, you won’t be tempted by unnecessary purchases that could drain your account. Try using cash for things like groceries, entertainment, and dining out. A simple budgeting trick is to put some cash in envelopes for each spending category and stick to them.
Create a Buffer
A buffer is a cushion of funds in your account that protects you from overdrafts. It can also save you money on fees and help you feel more secure. You can create a buffer by setting aside some of your income or any windfalls, like bonuses, tax refunds, and gifts. Another option is to use a savings app or tool that automatically moves a small amount of money from your checking to your savings account regularly.
Use Direct Deposits
Direct deposits are when your money gets transferred electronically from your employer or other sources to your account. This way, you can access your money as soon as you earn it and avoid any delays or mistakes.
You can set up direct deposits for things like your paycheck, benefits, pensions, and dividends. Direct deposits are also a great way to avoid overdraft fees, since you’ll always know how much money you have in your account.
Bank With an Institution That You Understand
The last tip to avoid overdraft fees is to choose an FI that you understand and trust. Different institutions have different policies and practices when it comes to overdraft fees and services. Some might charge higher fees, have stricter rules, or offer fewer options than others.
You should pick a financial institution that meets your needs and preferences and that gives you clear and honest information about their overdraft fees and services.
Say Goodbye to Overdraft Fees: How City and County Credit Union Puts Members First
At City and County Credit Union, we know how overdraft fees can hurt your finances. That’s why we’re dedicated to providing an experience that puts our members first. As a non-profit organization, our goal is your financial well-being, not making more money.
When you choose CCCU, you’ll enjoy a range of benefits that go beyond just avoiding those annoying overdraft fees. We offer competitive rates, so you get the best value for your money. And here’s the best part — there are no hidden fees or prepayment penalties to worry about. We believe in transparency and helping you make smart decisions about your finances.
But don’t just take our word for it. Listen to some of our happy customers about their experiences with CCCU and how we’ve made a difference in their lives:
"With no monthly fees, I am able to keep my pension intact for my own needs. The 24-hour accessibility to my money keeps me worry-free!" - Beverly H, CCCU member since 2019.
"Falling on hard times due to COVID has been challenging for our family, yet trying to keep all of our bills paid on time. I can't thank the team at City and County enough for waiving the overdraft charges. This has helped our family with food and paying our bills.” - Vicki T, CCCU member since 2015.
"I haven't always been the best at managing my finances. And when I had my first kid, saving and being aware of my limits became so much more important. Money management is definitely something I needed more practice with. But there were times I either went over my checking limit or was confused about certain charges. City & County Credit Union has always been kind enough to help me get back on track, refunding where mistakes were made or finding alternative solutions to my problems. As I have a kid now, every cent I make goes to supporting my daughter and my home. I don't make a lot. So CCCU's help has been essential to every last penny I own.” - Raya R, CCCU member since 2002.
Think Pink
So, how can you avoid those pesky overdraft fees? By choosing CCCU, you’re already ahead of the game. We believe in empowering you to take control of your finances.
Don’t let overdraft fees spoil your finances. Join us at City and County Credit Union and experience a financial relationship that cares about you. Together, we can make sure that your money stays where it belongs — in your pocket.
