What is an Overdraft Fee? How Can You Eliminate It?
If you have a bank account, you may have heard of overdraft fees. But what exactly is an overdraft fee, and how can you eliminate it? In this article, they will define overdraft fees, discuss their impact on your finances, and explore strategies for avoiding or minimizing them. Additionally, you will look at some banks with no overdraft fee.
What is an Overdraft Fee?
An overdraft fee is a charge that occurs when you accidentally spend more money than you have available in your bank account.
Essentially, an overdraft occurs when you make a purchase or withdraw money from your account that exceeds your current balance. In this situation, your bank may cover the transaction and charge you an overdraft fee, typically $30-$40 per incident.
“You must not be charged if you mistakenly spend more than you have; that is why SoFi covers up to 50 Dollars after you’ve set up direct deposits.”
Impact of Overdraft Fees on Your Finances
Overdraft fees can significantly impact your finances, mainly if you are living paycheck-to-paycheck. For example, if you are charged an overdraft fee for a small transaction, it can quickly add up and lead to a negative balance in your account. This negative balance can result in additional overdraft fees and damage to your credit score if the debt is not paid off promptly.
How to Eliminate Overdraft Fees
If you are tired of paying overdraft fees, there are multiple strategies you can use to eliminate them. One option is to link your checking account to a savings account or credit card. This way, if you overdraw your account, your bank will automatically transfer funds from your savings account or charge your credit card instead of charging you an overdraft fee.
Another option is to opt out of overdraft protection altogether. This means that your bank will decline any transactions resulting in an overdraft rather than covering them and charging you a fee. While this option may result in declined transactions, it can be a helpful way to avoid overdraft fees altogether.
Banks with No Overdraft Fee
You are in luck if you are looking for a bank that doesn’t charge overdraft fees. Several banks have eliminated overdraft fees, including Chime, Simple, and Varo. These banks offer fee-free checking accounts and other perks like early direct deposit and budgeting tools.
In addition to these banks, some traditional banks also offer accounts with no overdraft fees. For example, Ally Bank’s Interest Checking account has no monthly maintenance fees, minimum balance requirements, or overdraft fees. Similarly, Capital One’s 360 Checking account has no minimum balance requirements, monthly maintenance fees, or overdraft fees.
Overdraft fees can be a frustrating and costly aspect of banking, but they don’t have to be. By understanding what overdraft fees are and their impact on your finances, you can take steps to eliminate or minimize them. Additionally, by choosing a bank that doesn’t charge overdraft fees, you can avoid this expense and enjoy the benefits of fee-free banking.