How to Avoid Bank Overdraft Fees for Good

If you've ever been tight on cash chances are you know how painful the sting of bank overdraft fees can be. I once overdrew my account by $11.37 and paid a $96 overdraft fee. When I questioned the charge the bank was quick to let me know that the fee was charged as a courtesy for paying my transactions. However they also said that the fee would have been the same if they had to return the transactions so it was in my best interest that they paid them. This was when I realized that overdraft fees were part of a game I didn't want to play. Here are some tips to help you avoid a similar situation.

Keep a ledger
Working with the balance you get online or at the ATM is not enough. The bank balance only shows transactions as they "post" to your account, and certain transactions cannot be seen immediately. Rather than risk the costly mistake of forgetting a tramsaction write everything down as you go and keep a running total. That way you always know how much money is available in your account.
Most banks also manipulate the order in which transactions clear your account. Most banks post transactions largest to smallest so you'll want to find out how your bank works, but again if you keep a good ledger you will always be safe because you'll always know how much cash is in your account.

Ask about Funds Availability
Some banks hold your money for a short period of time if you deposit a check. This hold allows the bank to make sure the check will clear. Always be sure to ask when your money will be available BEFORE you start spending to avoid any unpleasant surprises.

Opt Out of "overdraft coverage"
Your bank will have a fancy name for this service, and they will have a well scripted sales pitch for why you need it. The fact of the matter is, the recent finacial reform passed by congress made it illegal for banks to pay debit card transactions and charge you overdraft fees when they know you don't have funds available at the time you swipe your card, unless you give them written permission. Sure there are reasons when you might want the transactions to be paid, but for the most part I would rather have a cashier tell me my card is declined than get a $100 fee because I spent $3 more than I had in my account.

Overdraft Protection
Most banks will give you the opetion of setting up another account to cover you in case you spend to much. Common practice is to link your savings account or credit card to your checking and if you over spend the bank automatically transfers funds from the other account to cover your transactions. There is usually a fee for this service but it is always less than the overdraft fees that would accumulate if it wasn't there.

There you have it. Those are the best and easiest ways to avoid overdrafts. Keep in mind it is always best to ask how your banks overdraft policy works when you open your account. This will give you the set of rules you have to play by.