If you've ever been hit with an overdraft fee, you've probably felt the frustration that comes with suddenly being $35 in the red. As a nation, we paid roughly $34 billion in overdraft fees, with the average fee being about $33-35.
An overdraft fee usually occurs when you spend more money than you have in your bank account. Perhaps you used your debit card, withdrew money from the ATM or have automatic bills tied to your checking account and didn't realize you lacked the funds to cover the purchase.
The part that makes overdraft fees tricky and dangerous is that banks can charge you multiple overdraft fees in a single day. Banks commonly charge a maximum of four to six overdraft fees per day per account, but each bank and credit union has its own limit on the number of overdraft fees it will charge in a day.
So, if you have more than one transaction going through while you're overdrawn (i.e. you made purchases at Target and your rent check went through on the same day), you may be charged more than one overdraft fee. So, what was a $35 fee can quickly turn into $70 or $105.
Even if money is tight and you may not always have the funds to cover yourself in the bank, vow to never pay an overdraft fee again. Here's how.
One way to avoid getting charged an overdraft fee is to check to see if you're auto-enrolled in your overdraft protection at your bank or financial institution. (You can either call your bank or log in to your bank account to check.)
If you are enrolled, it means the bank will cover the transaction (and charge you that $35 fee) when your account is overdrawn. The Consumer Financial Protection Bureau put things into perspective and explained the overdraft fee in this way: “Let's say you were charged a $34 fee for being overdrawn by $24, and it took you three days to pay that overdrawn amount back — that's the same as taking out a loan with a 17,000 percent annual percentage rate."
It's basically a ripoff.
So, when you opt out of overdraft protection, it means that the purchase you make (if you don't have enough funds to cover it) won't go through. For example, if you're at Target and you don't have the funds in your account, your debit card will get declined.
It may be slightly embarrassing, but at least you won't get hit with an unnecessary $35 fee.
The “I don't know how much I have in my account" excuse should never be an excuse. You should always know how much you have in the bank.
An easy way to do this is to use your bank's mobile app and sign up for text alerts or emails so you know when your account balance is low.
If you have another checking account, you can set up your account so it triggers an automatic transfer from one to another to cover the transaction. The linked account is usually a savings, credit card or another checking account.
You'll have to check with your bank's policy to see what your options are, but setting up your transfers this way means you may only get charged $10 or $12 (as opposed to $35). The service may even be offered for free, depending on your bank.
If you know you're not the best at staying on top of your account balances, you may want to get a prepaid debit card. Prepaid means you've loaded the card with cash, so you'll never spend more than what you have in the account. You can kiss those overdraft fees good-bye forever.
Maybe it's time to switch it up and move to a bank that doesn't charge an overdraft fee. Some online banks offer a very lenient overdraft policy. A quick list of banks that don't charge an overdraft fee includes Chime Bank, Simple, Capital One and Discover.
As long as you stay vigilant when it comes to how much you're spending and how much money you have in your account, you won't need to worry about having to pay an overdraft fee ever again.
Opt out of overdraft protection and sign up to receive alerts from your bank when account balances are low.
If your problem stems from overspending, it's time to take a step back and assess why and what steps you can make to resolve that issue.
Claire Tak is a writer who previously served as head of content and chief editor for FinTech companies in New York and San Francisco. Her work has appeared on FOX Business, Bloomberg and Forbes. She writes regularly about travel, money and being a good human. Traveling and snowboarding are her two favorite things to do.