Seeing red? Prevent a negative balance in your account by following these simple tips, many of which can be achieved with a simple enrollment in online banking.
TRADITIONAL BANKING SOLUTIONS
Opt out of overdraft coverage. Debit card transactions cause more overdrafts than any other transaction type, according to a 2014 report from the Consumer Financial Protection Bureau (CFPB) recently published by NerdWallet staff writer Spencer Tierney.
Luckily, since 2010, consumers have had the option of opting out of overdraft coverage, a service that declines debit card or ATM transactions when your account contains insufficient funds. The alternative would be incurring an overdraft fee from your financial institution for the insufficient funds, as well as a returned item fee from the entity receiving your money. Opting out eliminates the additional fee or stops you from making a purchase that would send your account into the red.
Maintain a buffer balance. “Most overdrafts occur due to relatively small sums, often $20 or less. That means you can avoid a lot of overdraft fees by keeping a cushion in your checking account at all times just in case a deposit is delayed or you make a mistake in your register,” says Marcie Geffner of Bankrate.com. U.S. News contributor Simon Zhen recommends a buffer amount equal to the sum of one month’s recurring expenses (rent, utilities, fuel and groceries).
Link an account or line of credit. Your financial institution may offer the option of linking a savings account, credit card or specified line of credit to your account that would cover an overdraft if needed. “When a transaction causes a negative balance, a [financial institution] will automatically perform an overdraft protection transfer from the linked account to cover the overdrawn amount,” Zhen explains. “Note that [financial institutions] may charge an overdraft protection transfer fee. With a line of credit, you’re simply borrowing from this credit line and you’ll be subject to interest charges, just like any other loan.”
ONLINE BANKING SOLUTIONS
Use online bill pay rather than auto pay. Automatic bill pay is a great service as far as convenience goes, but it can wreak havoc on maintaining a budget. Instead of setting up auto pay with billers, utilize online bill pay through your financial institution’s online banking. Making the payments manually gives you control over the transaction, so you won’t have to worry about any forgotten expenses pulling your account balance below zero. It’s also a better option than mailing in a physical check, which could take weeks to clear.
Dutifully monitor spending. Another benefit of online banking is the mobile aspect. Today you can check your account balance anywhere, anytime—sometimes without even manually signing in. Taking full advantage of that increased potential for vigilance can save you big.
Create account alerts. If you find manually checking your balance to be a bit tedious, automate the process instead. Sign up for alerts by calling Customer Care or your local banker. These alerts will notify you via email or text message anytime a certain event occurs, such as unusual account activity, an overdraft or falling below a certain amount. Some platforms will even allow you to do this in real time. “When you’re alerted to an overdraft, you may be able to deposit money in time to avoid the overdraft fees,” Zhen says.
By simply being observant and taking advantage of the tools and resources provided to you by your financial institution, you should be able to circumvent overdrafts and their corresponding fees.