How to Avoid Overdraft Fees

There is one fool-proof way to avoid overdraft fees. Always ensure that you have enough money on deposit at all times to cover all the debits that you authorize.

If you set up recurring payments to be debited from your account, it is absolutely essential that you have those funds on deposit prior to the date the account will be debited.

How to avoid overdraft fees when relying on direct deposit

If you are counting on direct deposit to cover your authorized charges, you need to make sure your direct deposit has been credited to your account before you make any withdrawals. For example, your employer pays you on Fridays. You see that your pay-stub reflects Friday's date as your pay-date. You visit the liquor store on Thursday night to purchase cigarettes. On Friday morning, you call your bank and discover that you have been assessed a $35.00 overdraft fee. You notice that your direct deposit has also been credited to your account.

You might be tempted to complain to your bank because you feel the direct deposit should cover the purchase of your cigarettes. However, you did not wait until after the direct deposit was credited to your account before making your purchase. It is not a bank error; it is your error.

Never spend money ahead of time while relying on direct deposit to cover your checks and purchases. There are situations where your employer, or the payroll company, may make errors causing a delay in the posting of your direct deposit. If you wrote the rent check before your direct deposit is available in your account, and your landlord cashes it, you will be responsible for any fees you incur.

How to avoid overdraft fees by not writing post-dated checks

Banks will specify in their personal deposit account agreements that they have the right to decline to process post-dated checks. However, they will add information stating that they may process post-dated checks at their discretion and will not be responsible to you for doing so.

That means you cannot write a check dated June1 if it is only May 31. It doesn't matter if you plan to have money in the account on June 1, if the check clears your account on May 31 and you did not have enough money to cover it, expect to pay a hefty fee.

How to avoid overdraft fees by preventing "the domino effect"

Lets say you have enough money in your checking account to cover 10 cups of coffee at $3.59 each. You purchase those 10 cups of coffee over the weekend. On Monday night (the following business day), those 10 purchases post to your account along with a check that you forgot you wrote for your granddaughter's birthday. If that check is for the amount of $50.00, and your bank posts transactions from highest to lowest (this is a common practice), you will be assessed 11 fees. One for the check which took up your entire available balance, and one for each cup of coffee that you purchases over the weekend.

The way to avoid "the domino effect" is by making sure you consider each and every outstanding item before making a purchase based on the account balance.

How to avoid overdraft fees by using internet banking or telephone banking

With today's technology, it is easier than ever to obtain the most accurate up-to-date balance information your bank has to offer. You can check your balances on your telephone and on the internet. Although it is very important to check your balances on a regular basis, you can't rely on the balance the bank provides.

The reason you cannot rely on that balance is because it will not reflect any items that you have authorized which have not been presented against your account yet. For example, you call the bank and discover you have $100.00 available balance. If you go out and spend that $100.00 without realizing that you wrote a check for $100.00 earlier in the week that had not posted yet, then you will overdraw the account.

The correct way to use internet banking to avoid overdraft fees is to use the online banking information to supplement your use of an old-fashioned checkbook register, not in place of it. If you check your balance online, you can also compare the list of items which have already posted to your account to the list of items written in your checkbook register. Subtract the amount of your outstanding debits from the amount of your balance provided by the bank. The resulting figure should exactly match what you have written in your checkbook register. If not, then you should review your records to ensure that you have logged all your transactions accurately.

While banks occasionally do make errors, they will reverse all fees caused by their error. However, you cannot expect them to reverse fees caused by your error. The best way to avoid overdraft fees is to keep accurate records and never use money that you do not have on deposit.