The giveaway to receive one of two free copies of Quicken Premier 2009 has ended.
As I mentioned earlier today, overdraft fees (also known as NSF fees, insufficient funds fees, etc.) are basically interest paid for the privilege of using a bank’s money for a short period of time, a loan. There are ways to avoid them without yelling at underpaid customer service representatives who don’t have the authority to help you with the issue.
It’s better to prevent overdraft fees than attempt to have them reversed after they appear on the monthly statement. Several of these preventative tips are covered in Overdrawn!, the documentary I mentioned this morning. This advice is generally straightforward, and many people might find these tips to fall under “common sense.”
Before taking action, keep in mind that forgoing overdraft protection adds more responsibility to you, the customer, if you want your checks to clear and your purchases to complete.
Don’t accept overdraft protection. When you apply for a new account with a bank, if you have an option of overdraft protection, decline. If the option isn’t explicit, talk to a bank representative before opening the account. The option may be hidden to the customer. If there is no option, even after speaking with a representative, consider opening your account with a different bank.
If you’ve already opened the account, call customer service and as for the “feature” to be disabled on your account.
Track your deposits and withdrawals. By declining overdraft protection, you leave yourself vulnerable to rejected transactions and bounced checks. Keep in mind that deposits via check may take several days to increase your available balances, and track your spending using software like Quicken, the free Quicken Online, GnuCash, or any tracking system works for you (as long as it does work).
Link your checking account to a savings account. Of course, this option is most effective when your savings account carries no maintenance fee and no fee for transfers for overdrafts. Most importantly, the savings account must be funded to cover the overdraft.
Linking a credit card, as offered by many banks, may not be a good idea. This approach encourages taking on more debt. Your overdraft may be considered a cash advance, which on most credit cards carries a higher interest rate than a purchase. If no other options are available, this may be the best way to avoid the accidental NSF fee.
Buffer your balance. Many people manage to keep their checking account as low as possible, either out of necessity as living paycheck-to-paycheck is a reality for many families, or for maximization of interest. To maximize interest income, the prevailing thought is to leave your checking account as low as possible and transfer any unused cash to a high-yield savings account, so more money is working to earn interest.
If your checking account is subject to overdraft fees and if you believe you are prone to making a mistake with your money management, consider trading some potential interest for a safety net in your checking account. Pad your balance by $100, $500, or $1,000 — whatever works for you and your cash flow — to help ensure you won’t accidentally withdraw more than you have. If it helps, don’t record this padding in your Quicken records. This way you may not be tempted to spend your buffer.
Add your tip and win Quicken Premier 2009
If you have any suggestions for avoiding overdraft fees, please leave them below in the comments. By leaving a comment here, you’ll be entered in a drawing for a free copy of Quicken Premier 2009 (for Windows). I have two copies of the software to send to Consumerism Commentary contributors who live in the United States. To be considered for one of the two copies of Quicken Premier 2009, all you have to do is leave a comment on this post, preferably containing a suggestion for dealing with these particular bank fees. I will close the giveaway on Monday, November 1.
Note: the giveaway is now closed and the winners have been notified. Please feel free to leave comments if you wish.
Updated November 8, 2008 and originally published October 27, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.
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Echoing the use of ING with (limited) free overdraft protection. I also use a low interest money market account linked to another checking account for overdraft protection. Not the best deployment of funds, but it is easier.
If I win it will be a switch back to quicken from M$ Money… They have trashed my data for the last time. ( 8 years worth. My online backup was deleted as well because I didn’t access it enough. )
I suppose this is really avoidance but in addition to tracking expenses, I’ve trained myself to think of my bank balance as at zero when there’s really about $1000 in it. I’ve tricked myself into not allowing my account to get until $1000 under any circumstances. I guess it’s really just an emergency fund but it’s more about training your mind to ignore the reality of the number and pretend it’s just all zeros. Doing that means that I can’t buy anything if I’m close to the $0 ($1000) and if I accidentally have something withdraw, I ‘freak out’ and ensure to get it back over $0 ($1000). This way I never pay any NSF or overdraft fees, and a bonus is that depending on what the minimum is, I don’t have to pay for checks either. It’s really just a getting into the right mindset and tricking yourself into establishing a bottom limit.
As others have said, paying with credit (and then paying off the credit card each month) is an easy way to generally avoid the NSF fees (not to mention earn rewards for paying your bills).
Another thing to do is to make a list of all your major monthly payments and their due dates. Try and divvy them up (many companies are flexible with your billing date if you just call) so they’re evenly spaced out based on your pay frequency (if you’re paid twice a month, or every two weeks, for example, then try to have half the bills due in the first week of the month and half in the third week of the month). When you get your paycheck, pay off the bills that are scheduled around the time of that check. Whatever is left over is available for the other expenses that come up (things like food and gas).
I have a friend who works for my bank, so I just call him up and have him reverse my fees.
Well, with Google Docs, set up a blank spreadsheet, then set up a simple form that you can use to add transactions to the database. On your mobile phone or Iphone, bookmark the URL you get for the form and each time you spend something, take a few moments.. update your database via the Google Docs form.
it works a treat. When you get home you can download the transactions from Google Docs. I wrote a similar post in the links above.
Like many others, I like to avoid fees of any kind on financial accounts. As for overdrafts, I estimate monthly bills paid via checks or automatic withdrawals. It’s easy as amounts don’t change that much month to month…. Then keep a few dollars extra in checking, just to be sure….. Try to group auto payments on same day, then be sure they are covered.
my advice echoes what others have said here, but for me the most important weapon i have is tracking my spending and having all of my bills in a spreadsheet. the ability to see what income is going out and where i stand makes the process painless. i also do get e-mail alerts when i come within a preset threshold and when a preset amount of money goes out. hope that helps
I use American Express for 95% of the time and PIF at EOM. with hilton honors points get 12-16 hotel rooms for free every year. you just need to make sure you have the money to pay.
The contest has ended. Thank you!
I suggest keeping your receipts and being dilligent using them to debit/credit your account. not oly will you alwyas be aware of whow much money you have avaiable you will also understand where your money is going.
I use a Fidelity MySmartCash account as my primary account. Checks are free, the account earns interest, all ATM fees are rebated, and you are able to link your checking account to your other accounts at Fidelity. If there is ever an overdraft due to a check, ATM withdrawal, debit card transaction, etc., and there is insufficient cash in the account, cash is automatically transferred from another account for free. You can specify which account any overdraft amount is transferred from, and also have an additional amount transferred to replenish the checking account to a “safe” balance ($250, etc.).
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