How to Avoid Overdraft Fees

Here’s a scenario: you write a check completely expecting to have the funds to cover that check, but you realize that you actually didn’t have the money. Then you’re hit with an overdraft fee.

If this has happened to you, don’t beat yourself up. You’re not alone. According to a recent report, banks collected $12.4 billion in overdraft fees last year. Are you worried about getting hit with another overdraft fee? Don’t be. We’ve compiled a few ways to avoid overdraft fees so you can be better prepared.

What are overdraft or NSF Fees?
9 tips for avoiding overdraft fees on your checking accounts
Can you opt out of overdraft fees?

What Are Overdraft or NSF Fees?

Overdraft fees are also referred to as NSF fees. NSF stands for non-sufficient funds. If a check or other debit is presented and your account doesn’t have enough money to cover the charge, you have non-sufficient funds.

Banks handle these situations differently depending on factors such as account policies, type of account and how often your account goes into the red. In some cases, the bank may go ahead and pay the charges. In others, it may deny the charges or send the check back—this is known as bouncing a check.

Ineitherof these cases, the bank typically charges a fee—known as an overdraft fee. According to Bankrate, the average overdraft fee runs in at around $33.47. Note that you may also be charged an NSF fee by the person or vendor you tried to pay. If the payment comes back to a store or other vendor, they may charge you $10 to $40 or more depending on their own policy and the state you’re in.

9 Tips for Avoiding Overdraft Fees on Your Checking Account

Sure, getting one or maybe two overdraft fees might not feel like a big deal. But if you find yourself with multiple overdraft fees on your hands, it can really add up. Here are nine proactive tips that can help you avoid overdraft fees.

1. Keep an Organized Checking Account Register

It’s tempting today not to keep a check register. Most people can easily check the details of their checking account online or on their mobile phone. But an organized and updated check register can help you avoid overdrawing your account when paying by check.

What’s a check register, you might ask? A check register is just a document that you can use to keep track of all the checks you wrote and other debits from your checking account. It’s okay if you’ve never heard of them—check registers are typically found in checkbooks.

Check registers might feel like a thing of the past, but they can actually be pretty helpful. If you’re tracking your balance online, you might forget about a check you wrote two weeks ago that didn’t clear yet. After a while, you might think you have more money available than you do, and suddenly that check clears and your account balance is unexpectedly low. Tracking all your payments in a register ensures you account for uncleared checks and payments at all times.

You don’t have to write in the paper check register that comes with your checks. You can keep your own notebook, use a computer spreadsheet or download a budgeting app that includes checking account tracking.

2. Opt out of Overdraft Fee Protection Programs Offered by Banks

Many banks offer overdraft protection, also known as overdraft privilege, and it might sound like a good idea. Typically, these programs ensure your payments are covered up to a certain amount even if you overdraw your account. Banks often point out how this can save you time and embarrassment at the register if you make an innocent accounting mistake.

While the bank covers your overdrafts, it also typically charges a fee for doing so depending on your terms. Remember that the average overdraft fee was $33 as of 2020. Banks may also charge daily fees or interest until you pay back the balance and bring your account above $0 again.

Overdraft protection may seem like a convenience, but it’s one that can end up costing you a lot more than other methods or even allowing the charge to be denied.

3. Connect Another Account to Cover Overdrafts

A better option than the type of overdraft protection mentioned above is connecting another account to cover overdrafts. Mistakes do happen, and anyone can make the kind of error that leads to a banking overdraft. Can you stop overdraft fees, though? You can if you have another account in line to cover those funds.

A popular option is to open a savings account at the same bank. You can ask to have the savings account connected to your checking account. If you ever overdraw the checking account, the bank can automatically transfer money from the savings account to cover the overdraft.

You might also connect a credit card or line of credit for the same purpose. Just ensure you read the fine print to discover if the bank charges fees for these services and what your interest on any line of credit or credit card might be.

4. Use Online Portals to Review Bank Accounts Regularly

While a check register is important, online access to your bank account is super convenient. You no longer have to wait for a monthly statement to know whether a banking error, fraudulent charge or other issue has impacted your balance and threatens to put you in the red. Checking your account balance and charges online once a week or more can help you avoid overdrafts.

For even more insight into your account, sign up for text alerts. Some banks will send you a text each time your bank account is used to pay for something. That lets you double-check numbers quickly and catch any fraudulent charges.

6. Keep a Buffer Amount in Your Checking Account

Some people opt to keep a protective buffer in their checking account that helps cover accounting errors. For example, you might decide to always keep $100 in your checking account that you pretend isn’t there. You simply adjust your check register down $100 so that it appears you always have $100 less than you do. If you ever make an addition or subtraction mistake or forget to write down a charge, the buffer should cover it.

7. Use Credit Cards Instead of Debit Cards in Certain Situations

Let’s say you use a debit card to rent a car. The agency you use may put a hold of $500 or more on your account on top of the rental car cost. Hotels, gas stations and some other service companies may also put holds on your account while a payment processes. This can lead to overdrafts because you didn’t expect the hold or because keeping track of when holds and payments go on and off can be confusing.

In some cases, you might want to pay with a credit card instead. This leaves your checking account free of all the holds and lets you make one payment monthly to the credit card company to cover those expenses. Plus, if you have a rewards card, you could rack up points for cash back or other rewards. To make this work for you without running up credit card debt, though, you have to be careful only to spend what you have the money to cover.

8. Pay With Cash When Making Small Purchases

Another way to reduce the confusion in your check register is to use cash when making small purchases. A coffee in the drive-through or a soda at the convenience store may run you less than $5. It might seem like an insignificant amount and not even worth recording in your check register.

But those small purchases can add up to an overdraft if you’re not keeping track of them. Instead, pay cash so you don’t have to worry about it.

9. Open a Chime Account for Online Checking Purposes

Finally, consider signing up for an online checking account product that doesn’t charge overdraft fees. Chime* is one option. It offers fee-free overdraft up to $200 for eligible members and lets you get paid up to two days earlier when you have your paycheck directly deposited. Check out their features! *(Chime is a financial technology company, not a bank. Banking services provided by, and debit card issued by, The Bancorp Bank or Stride Bank, N.A.; Members FDIC.)

Can You Opt Out of Overdraft Fees?

If your bank charges overdraft fees for going negative on your account, you can’t opt out. You can, however, take some of the above proactive steps for how to stop NSF fees. And if you really want to ensure you’re not getting hit with fees, consider signing up for a service like Chime.