How to Avoid Being Charged Overdraft Fees

Three Methods:Eliminating Overdraft ChargesMaintaining Your Account BalanceManaging Your Money

Once your bank account has suffered a negative balance due to anything other than a system error, financial institutions can penalize you with a charge otherwise known as an overdraft fee. Though the fee varies, it's frustrating and can easily add an unforeseen expense to your budget.[1] Here are several ways to prevent overdraft fees from occurring.

Method 1
Eliminating Overdraft Charges

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    Select an overdraft option. Your bank can help you out with services that can limit or completely eliminate overdraft fees. Typically, you have three options:
    • Overdraft coverage - A limited type of coverage in which the bank will honor the request that puts your balance below $0 in anticipation of getting reimbursed in the future.
    • Overdraft protection - The bank will automatically withdraw funds from another account or grant you a line of credit in the event of an overdraft. Keep in mind that lines of credit will sometimes have a transaction fee and almost always have an interest rate.
    • Complete opt out - You're under no obligation to have any overdraft protection at all. In that event, some of your payments could be rejected. Keep in mind that there is sometimes a fee associated when that occurs as well.
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    Ask to have a single overdraft charge eliminated. If you've been hit with an overdraft fee only once and you've been banking with the same company for years, approach a customer service representative about getting the overdraft fee removed. Many banks will waive the fee for good behavior.
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    Negotiate if you have a lot of overdraft charges. Perhaps your bank will waive a series of overdraft charges if you're willing to set up a savings account for automatic overdraft protection. As an added incentive, you could offer to accept other services with the bank in exchange for eliminating the fees.

Method 2
Maintaining Your Account Balance

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    Avoid relying on your "Available Balance." It's tempting to treat the "Available Balance" amount on your ATM receipts as gospel. However, that figure doesn't reflect checks that haven't been presented for payment yet (often called "outstanding checks") or bank card purchases that haven't been processed yet. You may also have some automatic payments set up that are occurring within the next couple of days.
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    Keep your check register up to date. The best way to get a proper "available balance" amount is to keep your check register up to date. Be sure to record all transactions so that you have an accurate reading of checks that will soon be presented for payment. That will enable you to better understand how much money you have available for withdrawal.
    • Find out if your bank or credit union has an app to help you keep up with your check register.[2]
    • Check with your bank about online services. Often, banks will host a portfolio of services to help you better manage your money.
    • If you prefer the paper-and-pencil method of managing your register, be sure that you do it consistently so that you can be certain your understanding of the available balance in your checking account is accurate.
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    Balance your checkbook. If you're getting slapped with an overdraft fee, it could also be due to the fact that you overestimated how much was in your bank account because you didn't balance it recently. Balancing your account will often reveal checks that you forgot to record.
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    Include bank card purchases in your register. You almost certainly purchase items with check cards on occasion. If that's the case, then be sure that you include those purchases in your register as well. That's because bank card purchases, like checks, often take a few days to clear.
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    Remember that deposited checks, including paychecks, also take time to "post," or show up in your account.

Method 3
Managing Your Money

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    Try the envelope system. One way to avoid overdraft fees is to use mainly cash in your transactions. You can do that, and stay in budget, with the envelope system.[3]
    • Take several envelopes and label them according to budget items ("Gas","Eating Out","Groceries",etc.).
    • At the beginning of the month, take out cash from your account and put the amount that's budgeted for each expense item in the envelope with the appropriate label. For example, if you've budgeted $100 for gas for the month, put $100 in the envelope labeled "Gas."
    • When you want to buy something within your budget, do so by pulling the cash out of the appropriate envelope. For example, if it's time to spend $20 for gas, pull the $20 out of the envelope labeled "Gas" and use that to pay for your fuel.
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    Create an artificial buffer. Why not give yourself some cushion in the event that something goes wrong or you made an error when balancing your checkbook? Set a lower limit on your account and never let it fall below that limit. For example, you might prefer to never let your account fall below $100 if you use it rarely. If you use it often and sometimes for larger expenses, you might prefer to never let it fall below $500.[4]
    • Some bank accounts require a minimum balance to avoid fees. Fees for going below a minimum balance are generally smaller than overdraft fees, but they are still an unnecessary expense. Ask your bank or credit union if they have such fees, and what your minimum balance is.
    • If you're trying to build your savings, try to increase your personal minimum balance, regardless of what the bank requires, even if it's only a little more each month. Besides creating your own insurance against overdraft fees, you'll also be building up a cash cushion, which you can use to avoid going into debt in case of a financial emergency or unexpected expense.
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    Ask about your bank's policies on drafts and payments. Some banks will process payments prior to processing drafts. That means if you have a deposit and a payment on the same day, your account could still drop below $0 because the payment was processed before the deposit. Know about those policies up front and schedule your payments accordingly.
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    Look into your bank's policies about when deposits get credited. If you're receiving payments for multiple jobs, you might find that corporate paychecks clear immediately or after midnight while hand-written checks clear a few days later. Familiarize yourself with you bank's policies about how long it takes certain types of checks to clear so that you know when you can expect the money to be credited to your account.


  • Join a credit union. Fees charged by credit unions are typically lower than those of a bank, and sometimes a credit union will reduce or remove a fee at your request if your account is generally in good standing.
  • It's important to remember that overdraft fees are intentionally high in order to encourage people not to overdraw their accounts. When a bank pays an item for which there is not sufficient funds, the company is taking a risk because you may not pay the money back.
  • If your bank offers a balance notification service, use it. This goes along with the buffer concept - whenever your balance gets down to a critical amount, stop spending. It might take some trial and error before you can settle on the proper critical amount.
  • Understand the fee structure. Each bank has policies enforced by federal law as well as self-established guidelines of its own. When you open an account, be sure to ask about the fees associated with the account, including overdraft fees.
  • Recent legislation prohibits excessive overdraft fees as usury (charging illegally high interest rates). You may be able to contest fees that go beyond what is permitted by law.
  • Access your paycheck early. Ask your employer to pay you for the work you've already done, without waiting for payday. Better to use your own money, than run into an overdraft fee.


  • Fighting with the bank teller and refusing to pay your overdraft charges is not a way out of this situation. Those people are just doing their jobs and you won't make any headway by being belligerent.
  • Overdrafts can have an impact on your record. A governing system among U.S. banks, known as Chex Systems, monitors account holders. Any customer who leaves a negative balance in his or her account for longer than thirty to sixty days is automatically charged off and reported. Your account will not only be closed, but you may take up to five years re-establishing your credit before another bank will take you in. Not to mention, you'll still owe the money!
  • Automatic payments and transfers can be a convenient way to avoid missing monthly bills, but if you have automatic payments set up, make sure you keep track of them, and make sure there is money in the account to cover them when the funds are withdrawn. If you're not sure, set a regular reminder in your calendar or phone, and make a point to deal with your payments promptly.

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