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How to Avoid Paying Overdraft Fees (Nonsufficient Funds)

Nobody likes paying bank fees. Luckily for you, they’re far easier to avoid today than they were even one decade ago. 

Two common types of bank fees are the overdraft fee and its close cousin, the nonsufficient funds fee (NSF fee). When you write a check or send an ACH transfer that sends your account balance below $0, most banks charge an overdraft fee. In 2021, the average overdraft fee was a whopping $33.58

These fees can stack up: If you send two payments that bounce, you get hit with two fees. Worse, some banks charge fees on top of fees, so an NSF fee could drop your balance below $0 and then trigger an overdraft fee.

Fortunately, some banks are doing away with overdraft fees altogether, such as CIT Bank1. Even if your bank does charge overdraft fees, you can still take steps to avoid overdrafting your account. 

How to Avoid Paying Overdraft Fees (Nonsufficient Funds)

Banking doesn’t have to be expensive. Increasingly, banks are ditching fees on checking and savings accounts

But the onus still lies on you to make sure you don’t get hit with overdraft fees and NSF fees. Take these steps to make sure you never pay an overdraft fee again.  

1. Check Your Account Balance Regularly

If you don’t know how much you have in your account, how can you know when it will overdraw?

Keep a close eye on your available balances. When your account balance gets low, either tighten your spending until the next payday or transfer funds in from another account. 

2. Set Up a Low-Balance Alert

Most banks today let you set up automatic alerts by email or text message, based on your account balance. 

Create an alert if your account drops below a certain “danger zone” balance, such as $500, so you know to add funds or freeze spending until your next paycheck. 

3. Keep a Buffer in Your Checking Account

I hate monthly maintenance fees by banks, but they do serve one purpose. They incentivize you to keep a buffer in your checking account. 

While you should definitely switch to a free checking account if your bank still charges a monthly maintenance fee, you aim to keep a cash cushion in your account as well. Think of it as part of your emergency fund

4. Sign Up for Overdraft Protection

Most banks offer some form of optional overdraft protection. 

These programs require you to link another account with the same bank to your checking account. If you overdraw your checking account, your bank can automatically transfer money from the linked account to cover the shortfall. 

Note that some banks charge for overdraft transfers, while others (such as CIT Bank) offer overdraft protection for free. 

One way to set up overdraft protection involves linking your savings account as a backup source of funds to your checking account. 

If an outgoing payment overdraws your checking account, the bank automatically transfers money from your savings account to your checking to cover the outlay. 

This is the most common form of overdraft protection since it involves funds you already own. But some banks also let you borrow money to cover insufficient funds (NSF) transactions. 

If your bank offers this feature, you can apply for a line of credit that your checking account can draw on if you overdraft it. 

The bank will charge you interest on the debt balance, of course, and possibly a transfer fee when it kicks in. Your balance limit and interest rate will depend on your credit score, income, and the individual bank’s policies. 

Some banks also let you link your bank account to an existing credit card that they offer. Tip your checking balance below $0, and it automatically takes a cash advance from your credit card.

You’ll pay a cash advance fee for the privilege, of course. And, if they really want to stick it to you, possibly an overdraft protection fee as well. 

Proceed with caution.

5. Opt Out of Overdraft Coverage

If your bank charges hefty fees for overdraft coverage, you can usually tell them “No thanks.”

Opting out of overdraft coverage comes with a consequence though. If you try to send a payment that your balance can’t cover, the bank will decline the payment. That can mean other headaches and costs for you, such as late fees on bills and bounced check fees charged by your payee. In most cases, at least, your bank doesn’t charge you a fee when your debit card declines. 

You’re usually better off just switching to a bank that offers free overdraft protection and doesn’t charge NSF fees. 

6. Find a Bank That Doesn’t Charge NSF Fees

Ten years ago, you’d have been hard pressed to find a bank that didn’t charge NSF fees.

But the industry is changing, and disruptive innovators like fee-free online banks have forced many traditional banks and credit unions to rethink their revenue model. 

It’s easier than ever to find truly free checking accounts that don’t charge monthly maintenance fees, ACH fees, bill pay fees, or even NSF fees when you overdraw your account. Try CIT Bank for a completely free checking account. 

7. Use a Prepaid Debit Card

Today, some prepaid debit cards work similarly to checking accounts. They can accept direct deposits from employers or government payers and waive ATM fees. Many also offer tools like online banking, bill pay, mobile banking and check deposits, and ACH transfers. 

Some even offer rewards similar to credit cards, such as cash back on purchases.

Increasingly, prepaid debit cards have started offering overdraft protection. But if your card doesn’t, it works like any other debit card and simply declines the transaction if you don’t have enough money to cover the purchase. It may be inconvenient and embarrassing when it comes time to split the check at dinner, but at least you won’t pay an overdraft fee.

8. Try to Get the Fee Waived

Many banks waive overdraft fees for first-time offenders. Call them up and ask nicely — sometimes you’ll be pleasantly surprised. 

But if you’re a chronic offender, don’t expect much leeway or sympathy. Financial institutions keep notes in your file about past fees they’ve reversed for you, and when they see a pattern of bad financial habits, they won’t be so obliging. 

If you’ve overdrawn your account more than once, take another look at your budget and financial habits. Consider creating a new, slimmer budget and keeping a deeper cash cushion in your checking account. 

Final Word

Bank fees might seem small individually, but they can add up quickly. And for people without much of a financial safety net, overdraft fees present real risks of fiscal strain.

Start by choosing a bank that offers truly free checking, with overdraft protection and no NSF fees. Then, take a closer look at your personal finances and spending habits, and the amount of cash you keep in your bank account. 

If overdrawing your account is a frequent problem, it’s time to review your budget categories, spend less, and set aside more money in your checking account as a buffer. That goes doubly if you have irregular income or expenses — a situation that demands a deeper emergency fund.

1CIT Bank is a division of First-Citizens Bank & Trust Company, Member FDIC

G. Brian Davis is a real estate investor, personal finance writer, and travel addict mildly obsessed with FIRE. He spends nine months of the year in Abu Dhabi, and splits the rest of the year between his hometown of Baltimore and traveling the world.