What is the Overdraft Opt-in Choice on your Checking Account?
In today’s world, there are many ways that you can access your money from your checking account or savings account without having to step into the bank. These include using an Automated Teller Machine (ATM), using a debit card, or ACH (Automated Clearing House) payments (i.e. online bill payments).
With these modern-day conveniences, there are the increased chances that you can overdraw on your account and cost yourself more money in the long run due to overdraft fees.
The Consumer Financial Protection Bureau explains that an overdraft occurs when you do not have the funds in your account to cover a transaction. Your financial institution will pay for the transaction through an overdraft program that they have.
What is Overdraft Protection?
Overdraft protection programs have been developed in many banks and credit unions but can vary from one institution to another.
By allowing your transaction to go through even though at the time you did not have enough money to cover the transaction, your bank’s overdraft program will pay for the transaction and charge you a fee.
Your financial institution will then take the repayment out of your next deposit as well.
At most banks or credit unions, the fee is a fixed amount per transaction.
Since the fee is charged per transaction, you could have multiple transactions happening to your account in a day and you will be charged overdraft fees for each one of those transactions.
When it comes to debit cards, overdraft fees, work a little differently. Your financial institution cannot charge you fees for overdrafts on transactions or on ATM transactions unless you have opted-in (agreed) to those fees.
If you choose to opt-in to ATM and debit card overdraft, you are usually allowed to make transactions even though at that time you do not have sufficient funds in your account to cover those transactions.
You will then incur fees on those transactions and again on your next deposit, the amount that you were overdrawn and the accompanying fees will be deducted from your deposit.
If you chose not to opt-in to an overdraft protection program, and you do not have the funds in your account at the time of the transaction, the transaction will generally be declined. Even if you don’t opt-in for the overdraft protection you may still be charged fees for overdrafts on checks or ACH transactions, just not on debit card transactions.
Deciding whether or not to opt-in to an overdraft protection plan can be one of the most important decisions you will make that affects the cost of your checking account.
What else can I do?
Knowing and tracking the amount of money that goes in and out of your account will greatly reduce the chances of you being overdrawn.
- If you have ACH payments attached to your account, know the amounts and dates that each transaction will occur.
- Record all checks that you have written against your account and deducted those amounts as well also know when funds that are being deposited into your account become available.
- Check your balance before making a debit card purchase or do an ATM withdrawal.
How do I avoid Paying Fees?
If you are looking to avoid paying any overdraft fees, the best thing you could do is not opt-in or if you are already in, opt-out of your financial institution’s overdraft program.
Yes, there still is a chance that you will be overdrawn; however, your transaction will be declined and you will not have to pay the fee.
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Another way to avoid paying overdraft fees is to consider linking a savings account to your checking account.
In this case, if you do not have enough money in your checking account, the institution will automatically transfer the difference from your savings account into your checking account to cover the transaction. Although you will not be charged with an overdraft, you may be charged a transfer fee, which is usually a much lower fee.
You can also see if you are eligible for a line of credit or linked credit card to cover your overdrafts, from your financial institution.
You will most likely have to pay a fee if you use the line of credit as well as interest on the amount that you had to use to cover the transaction, but it is maybe cheaper to do this in a brief cash shortfall.
Another consideration is to shop around for a different account. Find out what the list of account fees are for your bank and compare them to others. You may find some that will wave up to a set amount of transactions within a certain time period.
In today’s busy world, it is convenient to have many ways that you can access your money. Paying close attention to your spending will help keep those overdraft fees at bay.
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