How to Stop Daily Overdraft Fees

The bank overdraft is becoming an increasingly common problem for a great number of bank customers. Except for the very wealthy, most people these days experience one more times each month when their checking account balances fall to dangerously low levels that approach zero.

The reason for this is because most people receive payments from employers, individuals or companies either at regular intervals or at sporadic times throughout the month. For many of us, money is tight and we have to budget careful each month to make sure we do not spend more than we have coming in. Coordinating income and expenditures is crucial.

Given this situation, even the most careful among us can miscalculate now and then. The problem is even worse for people who share their checking accounts with another person, such as a spouse. Coordinating one’s own expenditures on a daily basis can be challenging enough, but doing so with another person who shares the account can be like juggling knives – a dangerous game without a doubt.

So, what happens when you miscalculate things by a few dollars? If you are the customer of one of the largest three or four of the national banking chains, you are very likely to overdraw your account. When you do, you will instantly be charged an overdraft fee of $25, $30 or more.

Overdraft fees are particularly painful when they happen often and/or happen in groups of two or more at a time. For example, it is not unheard of for a person to incur two, three or four or more overdrafts after a single day of shopping. This could easily result in fees of $50, $100 or more – all for overdrawing the account by $10 or less!

Banks aren’t making it any easier to escape overdraft fees. Why? Because they practice something called transaction stacking, whereby they purposefully process the transactions representing the largest amounts first, then moving on to the smaller ones, within a given day. Now, this is not a problem if you have plenty of padding in your account. But, if things are running low you could run into more overdraft fees. You see, by processing the larger transactions first- and if that happens to push your account into a negative balance – then the remaining smaller transactions will inflict a lot of damage in the form of overdraft fees. The result: what might have been a $10 negative balance instantly turns into a $100 or more in the red. Very painful indeed.

Why do banks keep doing this? Simple: overdraft fees cost Americans $25 billion each year. Put another way: banks make over $25 billion a year off of Americans in overdraft fees alone! This is big business for banks and represents a very healthy portion of their income each year.

If you are looking for some ways to avoid daily overdraft fees, read on.

Tips for how to stop daily overdraft fees:

1. Try to keep at least $50 to $100 in your checking account at all times. In other words, treat that amount as if it were $0. That will minimize your chances of miscalculating and overdrawing the account.
2. Link your checking account to a savings account that has a small amount in it – at least $50 to $200. Never touch the amount in the savings account. When/if the checking account overdrafts, money from your savings will be automatically brought in to cover it.
3. Check your account balance each morning and night – as well as any time before you do a major shopping trip.
4. Of course, the very best alternative is to switch to a bank that will never charge you an overdraft fee, even if you overdraw your account. These banks are looking for more customers like you.

Think switching banks is a pain? Well, is it worth $25 or $50 (i.e., the cost of your next 1-2 overdrafts)? Switching is free, so consider this option seriously before your next overdraft fee hits.