Overdraft is when a transaction or withdrawal surpasses the amount that you have sitting in your account. Your account balance will be in the “red” until you repay the funds and then some.
If your account has overdraft coverage, your bank will let the transaction go through (up to a limit). The amount will be deducted from your account, putting your balance into the negatives. You will have to repay that amount before getting your account back “into the black,” along with overdraft fees.
If you have no overdraft coverage, your bank will decline your transaction and charge you a non-sufficient funds fee (sometimes called an insufficient funds fee). Declining the transaction will prevent your account from going into the negatives, but it can cause other serious problems. It could mean that you miss an important bill payment, bounce a check or fail to cover an emergency expense.
As you can see, overdrawing your account comes with consequences you’d be better off avoiding. How can you avoid going into overdraft?
Overdraft protection is a banking feature that can allow you to avoid going into overdraft and incurring related fees. The feature allows you to link your checking account to a secondary account (for example, a savings account). When you make a transaction or withdrawal that puts your checking account past zero, the linked account will automatically transfer funds to cover the remainder.
Overdraft protection will come with transfer fees.
Alerts are handy online banking features that allow you to get instant notifications about changes to your accounts. The alerts can let you know when your credit card balance is close to the limit, when your profile has changed or when suspicious account activity has been detected. It can also let you know when the balance in your checking account is low.
Setting up this alert can help you avoid going into overdraft. You’ll know that you don’t have enough in your account to make any large withdrawals or payments.
If you have a bad habit of overdrawing your checking account, you may need to download a budgeting app and make yourself a personal budget. A personal budget could help you organize your monthly income so that you spend within your means and keep your checking account firmly in the “black.”
You might put your account into overdraft when you use your checking account to cover an emergency expense. To avoid this mishap, you should start building an emergency fund. An emergency fund is a collection of personal savings that you can use to cover urgent, unplanned expenses without touching the funds in your checking account.
What if you don’t have enough savings? You can still avoid overdrawing from your checking account. You could use your credit card to cover the expense and then pay down the balance afterward, or you could apply for an emergency loan online.
Look for emergency loans that are available in your location. So, if you live in Springfield or Kansas City, you should look for online loans in Missouri specifically. You don’t want to waste too much time checking out loans that aren’t accessible to Missouri.
Stop putting your account into overdraft. Follow these tips and break this bad habit for good!