Do This Before Bed: The 2-Minute Money Habit That Prevents Overdrafts
In 2023, the Consumer Financial Protection Bureau declared victory in its longstanding campaign against banking junk fees. Most notably, the CFPB announced that the vast majority of major financial institutions had eliminated non-sufficient fund (NSF) fees, saving consumers $2 billion annually.
Most, however, still charge overdraft fees — and they’re among the costliest common penalties that banks dish out. The good news is that they’re also perfectly avoidable. Tonight, before bed, you can eliminate overdrafts and the steep charges that accompany them with this quick, two-minute adjustment.
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The Easiest Way Around Overdrafts: Opt Out
To avoid overdrafts, many people opt for overdraft protection — the bank covers the difference and the transaction goes through despite insufficient funds in your account.
The catch is that you owe not just the amount that was overdrawn, but also whatever penalty your bank imposes. Unlike NSF fees, most banks still charge overdraft fees averaging $30 or more, according to the CFPB, and since they are per-transaction penalties, you can incur multiple overdraft fees in a single day. Additionally, many banks charge an extra fee if you don’t make up the difference that the bank spotted you within a few days.
Since declined transactions due to insufficient funds are now mostly free, and overdrafts on completed transactions are not, it’s generally better to just let the debit be declined and go unprocessed until you have the cash to cover it.
The CFPB reminds consumers that banks and credit unions cannot charge overdraft fees unless the customer opts in to overdraft coverage. Before bed tonight, take a minute to check if you opted in for overdraft protection when you opened your account and another minute to opt out if you did. You’ll sleep well knowing that the nightmare of overdraft fees is a thing of the past.
The Quick Fix: Link a Savings Account
The good news is that you can have the best of both worlds by relying on your savings, and not the bank, to rescue you when your transactions outmatch your account funds. Many banks let you link your in-house savings account to your checking account. When you make a transaction for more than you have in your checking account, it automatically pulls the difference from your linked savings account — and this service is almost always free.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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