10/5/2022
When we incur too many overdrafts in our bank accounts, it means that something is not working well with our finances.
It is a relevant issue because in the United States banks are very strict with their policies and especially because you are losing a lot of money with this behavior. To remedy this, we have some timely suggestions from our experts.
Ways to protect yourself against overdrafts.
Overdrafting usually occurs when you go to pay for something or have your account automatically debited and you don't have enough funds to cover the expense.
It can be problematic if you have opted for the insufficient balance protection offered by the bank when you sign up for its products. What sounds good in theory could actually be hurting you.
If you don't want to pay the annoying overdraft fees that banks charge on their checking accounts, you need to change your financial and spending habits. You just need to practice some common sense and have some discipline to avoid this silent embezzlement. As personal finance specialists, we recommend you:
Closely monitor your finances
Failure to keep track of your income and expenses is the main cause of overdraft fees.
Today, there is no excuse for not keeping track of your account statements because you have a variety of resources to do so. You have apps, online or mobile banking, alert services, personal notifications and more.
In addition to automatic payments, you need to be aware of your fixed expenses, amounts and collection dates. Accurate information about what you spend and receive is essential to avoid the occurrence of insufficient funds.
This simple measure helps you keep better control and be more aware of how you manage your finances.
Link other products to your main account
Whether you use your checking or savings account for most of your spending, you have the option of a backup to avoid overdrafting. This could be a line of credit, a credit card or an auxiliary account.
These options may represent an expense, but it is certainly much less than the overdraft fee. It's a simple process whereby these instruments serve as auxiliary funds to cover the missing balance if you don't have enough money.
The only catch is that both the line of credit and the plastic are subject to interest when you repay the money. However, this measure is cheaper than paying for not having enough money in your account.
Waiving overdraft coverage
Since 2010, banks and other institutions must ask for your consent to apply insufficient balance protection. Known as the "opt-in rule," this gives the institution where you have your money the power to charge you a fee every time you overdraw.
This is a cash advance that costs around $35 or more each time you go overdrawn. If for some reason you accepted this coverage, one way to counteract it is to find out if your bank allows you to waive it.
When this happens, instead of processing the transaction with borrowed money, it simply cannot be processed. While it may seem like a momentary inconvenience, the good news is that you're not losing money.
Use balance notifications
Often, reviewing our online statement can be misleading because there are transactions that have not yet been processed. Clearly, if you have a lot of fixed and unexpected expenses, you need more organized management.
One way to avoid overdraft is to ask your bank if they offer notifications associated with a minimum limit. This way, you receive a message or an email warning you that you are low on funds and must take the respective measures before another payment.
Switching banks
Having the backing of a major financial institution represents a long-standing relationship. However, there are times when switching may be the best solution to a problem that is seriously affecting your personal finances.
You will have plenty of options, but it is a decision that must be backed by a series of factors. If your current bank is not flexible with the opt-in rule or you feel that its services do not meet your expectations, a different entity could benefit you.
Final recommendation
Overdrafts are more common than we think because many people are not in the habit of managing their finances meticulously. It's not about being on top of things all the time, but about establishing certain effective controls that you will continue to apply without thinking about it. This way, you avoid bad times and unnecessary charges.
Ultimately, overdraft is best combated by saving or having a reasonable cushion so that this situation does not recur. We know that spending is an unavoidable practice, but with the help of Busconómico's comparator and our experts, we can put you on the road to healthy finances.
Español: Cómo protegerse contra los sobregiros