Overdrafts are a common result of individuals who are either unorganized or simply too busy to keep track of their debit card use and other debits from their checking accounts. When this happens, too many debits are presented to a bank account which lacks sufficient funds to cover all transactions. Here we look at ways to prevent debit card overdrafts and whether or not overdraft protection is a good idea.
The easiest way to prevent debit card overdrafts is by paying close attention to all transactions posting to your checking account. This includes automated debits, checks, debit card transactions as well as all deposits to your account. The following tips will help you keep all of your transactions in order and prevent overdraft fees.
Previously banks were allowed to automatically enroll account holders in an overdraft protection plan. What many individuals didn’t realize was overdraft protection plans do not necessarily prevent overdraft fees. In fact, in almost all cases, the only thing this type of plan allows is a transaction to take place that otherwise would have been denied or “returned for insufficient funds”. In doing so, an account holder can prevent additional overdraft fees, like those associated with a returned check. Unfortunately, the bank providing the overdraft protection will still charge a fee for this “protection”.
Consumers now have the choice to either opt-in for this protection or opt-out. Whether you should or should not opt for overdraft protection greatly depends on your personal money management habits. If you rarely overdraw your account and accurately track your money — this protection may be of little value to you. On the rare chance a debit it presented that would result in an overdraft, the one time fee may be worth the convenience. On the other hand, simply having the ability to overdraw your account may be tempting for individuals who struggle with money management. The end result in this case could be overdraft fees which compound one on top of each other, costing the account owner hundreds…perhaps even thousands of dollars over time.
When in doubt remember this; the best way to prevent overdrafts fees is by preventing overdrafts themselves.
Photo from Wikimedia Commons
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I'm just an average mom, trying to live a frugal life and get out of debt. I write about things that have (and haven't) worked to improve my family's financial situation. What works for me may or may not work for you, and you should always consult a financial advisor before making important financial decisions.
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