Personal Finance

Know how to avoid bank overdrafts

Have you ever paid an overdraft fee for not having enough money in your account? Everyday many people pays overdraft and returned item service fees for not having enough funds in their account. This comprehensive guide will help you with necessary information on how to avoid bank overdrafts.

Bank overdraft and bounced cheque fees are occurred when you do any on these without having enough money in your bank account.

  • Withdraw money from a cash machine
  • Use your debit card facility for purchasing
  • Write a cheque
  • Make any electronic payments such as automatic debit bill payment

If you do any of these things without having enough money in your bank account, your bank can either pay the amount for you or not. If your bank pays the amount without having the sufficient amount in your account, you will be charge an “overdraft fee” the next time you make a deposit. You may also be charged a “bounced cheque” fee if your bank returns the cheque without paying the amount.

Managing your bank account is the best way to avoid bank overdrafts. You can easily manage your bank account by following some simple tips so that you don’t overdraw it. Let us discuss how to manage your account to avoid bank overdrafts.

  • Try to update your bank account register when even any transaction takes place. Remember how much balance you have in your bank account. Make a note of all the cheques you issued and any other transactions when you make any. While checking your balance amount do remember to deduct any fees paid or to be paid.
  • Remember to keep a record of the electronic transactions. Keep a note of your debit card purchases, online payments, and withdrawals. Don’t forget about your direct debit bill payments that you have arranged for loan payments, insurance, or any other utilities.
  • Always check and know the up-to-date details of your bank balance. Keep in mind that some automatic payments and cheques may not have cleared yet.
  • Review every monthly account statement and make a note of which payments have cleared and which one is pending. Check your account balance through online, at a cash machine or by calling your bank.

If you accidentally overdraw your account, try to cover the overdraft amount by depositing money into the account as early as possible. Try to deposit some additional money to cover any daily charges or additional fees you have to pay for overdrawing money. Depositing money early can avoid late fees and any other additional overdrafts.

Most of the banks and financial institutions also provide some less expensive ways to cover overdrafts. Inquire your bank to know whether such facilities are provided by your banker.

Some of these widely used facilities include:

  • You can link your saving and current accounts you have with your bank. After linking both accounts, if you overdraw any amount from your current account, the bank will automatically transfer the needed money from your savings account to pay the overdraft amount.
  • Another option is that you can decide an overdraft limit with your bank. For this you have to apply your bank for a “line of credit”. From then onwards if you make any overdraft, your bank checks the “line of credit” you set and pay the overdraft if the amount is within your set up credit. For this facility most banks will set a yearly fee.

You can avoid bank overdraft by following these simple tips. After all, managing your bank account and money is the best way to avoid bank overdrafts and bounced cheque fees.