Guest Post: 9 Smart Strategies to Help You Avoid Overdraft Fees

This guest post is brought to you by Cynthia Measom, a finance expert at GOBankingRates. Our goal is to help you buy and own your car smarter - which includes not racking up overdraft fees when you make your car payments!

9 Smart Strategies to Help You Avoid Overdraft Fees

Nobody wants to have a missed car payment on their credit report, and many people take measures such as setting up automatic payments from their checking account to avoid being late. Unfortunately, when you’re in between paychecks, you may find that you  don’t have enough in your account to cover those necessary payments when the time comes. And if you’ve opted-in for overdraft protection at your bank, that means you could pay an average of $30 every time your account’s balance isn’t enough to cover your expenses, depending on where you ban

Instead of surrendering to costly overdraft fees, you can be proactive to make sure you never get an overdraft fee again. Here are nine smart strategies to help you sidestep overdraft charges and avoid paying unnecessary fees that can drain your bank account.

1. Have Your Paycheck Directly Deposited

Direct deposit is the fastest way to benefit from your paycheck. You don’t have to wait for your check to be distributed to you. Rather than having to physically take a check to the bank for deposit, your employer arranges for your pay to be transmitted electronically to your account on payday.

Whether you are at work on that day or not, it doesn’t matter: the funds will still hit your bank account. Direct deposit is especially helpful if you are running low on funds and need the money in your account as soon as possible to prevent overdrafts.

 2. Keep Track of Your Spending

Creating a budget and knowing how much money you have to spend each month is key for financial stability. Failing to keep track of your spending, however, is a slippery slope if you’re trying to avoid overdrafting your account. Although it does take effort to keep tabs on what you’re spending, it’s well worth it if it can save you from paying costly overdraft charges.

Make a habit of placing all your receipts in a designated location during the day and reconciling your bank balance each night. There are a variety of budgeting apps that can make tracking your balance less of a drag and more of a quick task if you don’t want to resort to a calculator and notepad.

And remember, even though your bank will update your balance as debits come in, it won’t be able to account for purchases that you’ve made but are delayed — or automatic payments that haven’t yet posted for the month.

3. Confirm Your Account’s Balance Before Using Your Debit Card 

Just because you’re able to access funds at the ATM right now doesn’t mean that your balance won’t be in the red later. Even though you can check your current balance before getting cash at the ATM, you need to take things a step further.

Remember to consider things like checks you’ve written, automatic payments that haven’t posted or other transactions that haven’t settled as a way to get a more accurate idea of your balance. Otherwise, the ATM withdrawal you make today could end up costing you tomorrow.

4. Pad Your Checking Account 

Another strategy to help you avoid overdraft fees is to pad your checking account. Think of your bank account like the gas tank in your vehicle. If you let the fuel level get too low, you run the risk of running your car completely out of gas. A car without gas — just like a bank account without funds — can end up costing you money you could have avoided spending.

 You are likely very diligent about making sure your car’s fuel tank has enough gas at all times, so why not apply that same line of thinking toward your bank account? Make a personal commitment to always have some money in your checking account that you don’t touch. The amount is up to you, and you can grow that cushion over time.

5. Link Your Checking Account to a Funding Source

By linking your checking account to a savings account, credit card, or overdraft line of credit, you can sidestep overdraft fees if your balance falls below what you need to cover your expenses. The catch is that your bank may charge a transfer fee for each instance. If you go this route, make sure that the transfer fees are considerably lower than what it would cost for the bank to cover an overdraft.

 In addition, if you opt to fund your checking account from an overdraft line of credit or a credit card, you’ll have to pay it back. And if you frequently overdraft, you may max out your credit line in no time, which just creates more debt.  

 6. Sign Up for Balance Notifications

Contact your bank to find out if it offers automatic notifications related to a decrease in your balance. Some banks offer this as a courtesy and will allow you to set a threshold amount that triggers a notification via email or text. For example, you can request a notification be sent automatically when your bank account balance reaches $200. Receiving an alert about your balance can help prevent you from inadvertently overspending.

7. Opt Out of Overdraft Protection

Prior to mid-2010, many banks enrolled their customers into overdraft protection programs without having to receive consent. Since that time, however, banks are no longer allowed to enroll consumers automatically in overdraft protection for standard debit and ATM transactions. Instead, you must opt in for these transactions to be covered. If you previously opted in, consider opting out.

The drawback of opting out is that your debit or ATM card will likely be declined if you don’t have enough funds in your account to cover a purchase or withdrawal. The advantage is that you won’t be charged an overdraft fee.

Banks can automatically enroll customers in overdraft protection for check purchases or automatic payments. If you don’t want this protection, contact your bank to opt-out. And some banks may not allow you to opt-out of protection for these type of transactions if you want to continue to use the account.

8. Know Your Bank’s Cut-Off Time for Deposits

It’s important to know your bank’s cut-off time for deposits so that your deposit can be credited within the same day and you can increase your bank balance to avoid overdraft charges if you would otherwise run short. Many of the largest U.S. banks have later cut-off times if you deposit at an ATM or using a mobile device rather than with a teller at the bank.

Keep in mind that although the Expedited Funds Availability Act requires that the first $200 of a deposited check be made available to a depositor by the next business day, a bank can hold the rest of the funds for seven days or more.

So if you deposit a $5,500 check by your bank’s cut off time, and then make several transactions totaling $1,200 the next day, you could still overdraw if the bank is holding $5,300 in funds.

Why do banks hold funds from your check? There are a few potential reasons:

  • The bank has cause to believe the check is no good

  • You made deposits totaling more than $5,000 during the same day

  • Your account has been overdrawn frequently in the recent past.

The bottom line is that if you’re trying to make a deposit to cover a negative balance by the end of a business day to avoid overdraft charges, you may want to deposit cash to be safe.

9. Find a Different Bank

Even the best-laid plans can go awry, and you may not be able to banish overdraft charges completely from your life. If that’s the case, and your bank charges one of the higher amounts among banks for overdrafts, you might want to shop around for a bank that has more affordable fees.

 Banks often charge overdraft fees for every single overdraft that occurs within a business day, which can really add up. Among the five biggest banks, overdraft fees are $34 to $36. That means if you make three overdraft transactions in one day, you’re looking at fees of over $100. Look for a bank that offers lower fees and only charges once per day for overdrafts, matter how many you have. That way, if you do happen to overdraw, the financial impact can be kept to a minimum.

How to Get an Overdraft Fee Waived

Sometimes, even with your best efforts, you may find yourself in a situation where you receive an overdraft fee from your bank. If this is a rare occurrence or has never happened before, you may be able to get the fee waived. 

First, call the bank and explain to the representative that you noticed an overdraft fee and politely ask if she can waive it. If the bank representative refuses, be persistent. Mention that you’ve been a loyal customer for a number of years or you’ve never had an overdraft fee before. Ask the bank representative what she can do to get the fee waived. If the bank representative refuses to budge, thank her for her time. Then, call back and ask a different representative about waiving the fee. You might be able to get different results by speaking with a different person.

With a Plan, Avoiding Overdraft Fees Is Easy

As long as you make an effort to plan ahead, you should be able to effectively avoid incurring overdraft fees, and keep from spending money needlessly. The best approach is to pick the strategies that you think will work best for you and then faithfully apply them.

About the author:

Cynthia Measom is a Texas-based writer specializing in finance, business, parenting and education. She is currently a contributor to GOBankingRates. With almost a decade of online writing experience, her work has appeared on websites such as, The Bump and The Motley Fool. Measom received a BA in English from the University of Texas at Austin.