Spending above and beyond seems to happen around the holidays, especially when Americans are using this holiday as an excuse to make up for what’s been otherwise a lackluster year.
Shopping with a debit card might feel like it will do less damage than a credit card, but not when you lose track of your spending. When a checking account’s balance gets dangerously close to or less than $0, and you don’t have enough money to cover the charge, banks can essentially loan you the money to complete the purchase, but charge you a hefty fee known as an overdraft charge.
The going rate for overdraft fees is around $30 with some financial institutions charging as much as $34, according to Bankrate. The cumulative effect of the nation’s overspending is reportedly predicted to amount to more than $30 billion in revenue for checking account providers this year alone.
“An ounce of prevention is worth a pound of cure in this case when you're talking about fees,” Ken Tumin, founder and editor of DepositAccounts.com, told Cashay. “It's definitely important to be proactive and to avoid these overdraft fees, especially nowadays, when interest rates are so low and you're not earning much interest on your accounts.”
Tumin provided his tips and suggestions to avoid costly overdraft fees and keep more money in your holiday budget this season.
Ask for a courtesy refund. The pandemic has caused banks to be more forgiving in terms of fees, so calling your bank and requesting a waiver might work.
Depending on how often you overdraft your account, Tumin shared the “success rate is better than 50/50 now,” so your banking institution might be inclined to reverse the charge as a one-time courtesy if you explain your current financial situation.
Opt-out of overdraft protection. The next time you swipe your debit card and there isn’t enough money to cover the purchase, your card will get declined instead of over-drafting your account.
A declined charge is embarrassing and leaves you scrambling to pay, but Tumin explained that the “plus side” is “you won't have to worry about these $30 dollar-plus overdraft fees, so making sure to decline the overdraft coverage is probably a smart thing to do.”
However, most banks will still charge you overdraft fees on recurring bills.
Link your checking account to a credit card or savings account. If a purchase exceeds the funds available, the transaction will be covered by a different account.
Not all financial institutions offer this service to customers. So if overdraft protection is important to you, consider switching to a financial institution like Chase of Ally that protects customers from overdrafts, Tumin said.
Sign up for alerts when your account dips below a certain amount. This is easier than remembering to check your balance daily. Tumin shared that most banks that offer companion apps have alert systems that are easy to set up.
Read more information and tips in our Budgeting section