How online banking can keep you from overdrawing your account

Seeing red? Prevent a negative balance in your account by following these simple tips, many of which can be achieved with a simple enrollment in online banking.

Opt out of overdraft coverage.
Debit card transactions cause more overdrafts than any other transaction type, according to a 2014 report from the Consumer Financial Protection Bureau (CFPB) recently published by NerdWallet staff writer Spencer Tierney. Luckily, since 2010, consumers have had the option of opting out of overdraft coverage, a service that declines debit card or ATM transactions when your account contains insufficient funds. The alternative would be incurring an overdraft fee from your financial institution for the insufficient funds, as well as a returned item fee from the entity receiving your money. Opting out eliminates the additional fee or stops you from making a purchase that would send your account into the red.

Maintain a buffer balance.
Most overdrafts occur due to relatively small sums, often $20 or less. That means you can avoid a lot of overdraft fees by keeping a cushion in your checking account at all times just in case a deposit is delayed or you make a mistake in your register,” says Marcie Geffner of U.S. News contributor Simon Zhen recommends a buffer amount equal to the sum of one month’s recurring expenses (rent, utilities, fuel and groceries).

Link an account or line of credit.
Your financial institution may offer the option of linking a savings account, credit card or specified line of credit to your account that would cover an overdraft if needed. “When a transaction causes a negative balance, a [financial institution] will automatically perform an overdraft protection transfer from the linked account to cover the overdrawn amount,” Zhen explains. “Note that [financial institutions] may charge an overdraft protection transfer fee. With a line of credit, you’re simply borrowing from this credit line and you’ll be subject to interest charges, just like any other loan.”

Use online bill pay rather than auto pay.

Automatic bill pay is a great service as far as convenience goes, but it can wreak havoc on maintaining a budget. Instead of setting up auto pay with billers, utilize online bill pay through your financial institution’s online banking. Making the payments manually gives you control over the transaction, so you won’t have to worry about any forgotten expenses pulling your account balance below zero. It’s also a better option than mailing in a physical check, which could take weeks to clear.

Dutifully monitor spending.
Another benefit of online banking is the mobile aspect. Today you can check your account balance anywhere, anytime—sometimes without even manually signing in. Taking full advantage of that increased potential for vigilance can save you big.

Create account alerts.
If you find manually checking your balance to be a bit tedious, automate the process instead. Sign up for alerts through your online banking, which will notify you via email or text message anytime a certain event occurs, such as unusual account activity, an overdraft or falling below a certain amount. Some platforms will even allow you to do this in real time. “When you’re alerted to an overdraft, you may be able to deposit money in time to avoid the overdraft fees,” Zhen says.

By simply being observant and taking advantage of the tools and resources provided to you by your financial institution, you should be able to circumvent overdrafts and their corresponding fees.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Overdraft Protection 101

Learn the ins and outs of overdraft protection

Have you ever made a transaction and caused the balance of your account to dip below zero? That’s called an overdraft, and it’s a common occurrence among many. In fact, nine out of every 10 Americans have a checking account, and 18 percent of them have endured an overdraft within the year, according to a 2012 Overdraft America study.

Some of the most frequent times an overdraft can happen are when someone cashes a check before money was deposited, when an automatic payment withdraws money before money was deposited into the account or during other banking miscommunications — especially if your account has cash going in and out multiple times a day, things can certainly get confusing.

Financial institutions know this is a common situation. That’s why many of them offer overdraft protection, a protection program that covers the amount of an overdraft — whether it be ATM withdrawals, debit card purchases or electronic transfers and bounced checks. Essentially, overdraft protection will provide you with an instant loan instead of charging you a hefty fee for a bounced check.

Another option for overdraft protection is linking your account to a savings or other account, where money can be transferred over from in the event of an overdraft. Also, some financial institutions allow the use of a credit card as a possible overdraft protection.

“It’s a good idea, assuming the fees are reasonable and the credit card rates are reasonable,” says Jean Ann Fox, director of consumer protection for the Consumer Federation of America.

“It just gives customers another option,” says Mary Beth Navarro, a retail financial institution customer service manager. “Not every customer has a savings or money market account. And it’s less expensive than if you were to have an overdraft.”

However, there’s some controversy about overdraft protection programs. Some experts, like Greg McBride, CFA and Bankrate’s senior economic analyst, see a few bugs in the system.

“It doesn’t relieve consumers of the obligation to keep accurate tabs on their account balance,” he says. “Even though an ATM or debit card transaction won’t go through without our prior consent, if the balance is that low, the check written yesterday won’t clear and the online payment scheduled for tomorrow won’t clear.”

And keep in mind that if you’re consistently enduring overdrafts on your account, the fees could accumulate quickly, as many financial institutions do charge when the account balance is below zero (although the fee is typically less than that of a bounced check).

“A lot of people use their debit cards several times a day, so you could easily rack up hundreds of dollars worth of fees,” points out Leslie Parrish, senior researcher at the Center for Responsible Lending in North Carolina.

Either way, no one can argue the many pros that come out of overdraft protection. If you’re deciding whether you should get overdraft protection, give us a call or stop by today to see how we can help you.

Used with Permission. Published by IMN Bank Adviser
Includes copyrighted material of IMakeNews, Inc. and its suppliers.