It’s easy to lose track of your personal finances, especially as using debit or credit cards rather than cash to make purchases has become increasingly common.
The ability to complete transactions with a card has led to the rise of unhealthy financial habits, like overdrafting or spending beyond the balance in one’s checking account.
A study conducted by the Consumer Financial Protection Bureau (CFPB) found most overdrafts are caused by debit card purchases of small amounts, typically between $24 and $50.
For any individual, overdrafting can be a costly scenario. Overdrafting can create a negative balance on the bank account and subject the account holder to overdraft fees.
Learning how to prevent overdraft fees is an important money management skill and a key component towards maintaining good financial health.
What Are Overdraft Fees?
Financial institutions charge account holders a penalty — known as an overdraft fee when the account balance becomes overdrawn.
An account that is overdrawn forces the financial institution to cover the amount that was spent.
The fines incurred afterwards can eat away at one’s savings account, as in many cases money is drawn from it to cover the overdraft fees.
But there are simple strategies that can be used to prevent overdrafting on an account.
Use Overdraft Protection to Link Accounts
Overdraft protection is a service that, along with overdraft coverage, account holders are usually automatically enrolled in at the time of opening an account.
But overdraft coverage is different. The financial institution will cover an overdraw at the time of transaction and then charge the account holder a fee.
Although the names sound similar, it’s important for account holders to understand that this is not the case with overdraft protection.
Instead, overdraft protection connects two accounts owned by the same account holder within the same institution — like a checking account and savings account.
When an overdraw occurs under overdraft protection, money is automatically transferred from one account to the other. This allows the purchase to proceed without incurring overdraft fees.
Depending on the financial institution, account holders may be charged a fee for using overdraft protection. But these fees are typically much lower than those associated with overdraft coverage.
Depending on the financial institution, members may find that they are limited to the number of free overdraws before encountering a service charge.
HRCCU members can take advantage of the credit union’s overdraft protection service.
Those who wish to avoid overdraft fees should consult with their financial institution to ensure that overdraft protection is properly set up and is the first resort in the event of an overdraw.
Monitor Your Account Balance
For some, preventing an overdraft can be as simple as monitoring the balance in their accounts.
Mobile banking apps, online banking, and paperless statements can make monitoring an account a breeze.
Many financial institutions, like HRCCU, offer free online and mobile banking services, so members can enjoy 24-hour access to their account information and can even pay bills online through Bill Pay.
The mobile app also lets members track expenses, deposit checks remotely, and transfer money to other accounts.
Tracking financial activity is essential to preventing overdrafts and ensuring financial stability.
Create Bank Alerts
Members can have their financial institution send a notification through a variety of methods — including text, email, or other online tools, should the account balance drop to a certain amount.
HRCCU enables members to set up balance and transaction alerts through the AllData PFM financial tool. AllData services are available through the virtual banking platforms for HRCCU.
Using AllData, HRCCU members can monitor their finances with ease.
These alerts compel account holders to closely monitor account activity and balances. In turn, members can avoid incurring overdraft fees and other financial penalties.
Bank alerts can also be quite beneficial to account holders who use autopay for monthly expenses — like rent or a car payment.
Ultimately, notifications help to keep account holders organized and aware of their finances, so accidents like overdrafting are less likely.
Immediately Address Slip-Ups
In the case that an overdraft does occur, it’s important to contact the financial institution as soon as possible to settle the issue.
Overdrafts are not uncommon, and typically if it’s a first-time slip-up, the bank may even waive the overdraft charge.
The bank can also help to answer any questions you may have regarding overdrafts and how to protect yourself from facing a similar issue in the future.
Set Yourself Up for Financial Success with HRCCU
Financial success is founded upon good money management.
From affordable counseling services through a partnership with GreenPath Financial Wellness to the online education center, HRCCU supplies members with the knowledge and tools needed for financial success.
At HRCCU, we put your financial well-being first. Contact us today to learn how HRCCU can help you regain control over your personal finances.
