How to Avoid Insufficient Funds Fees

September 9th, 2020

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Insufficient funds, also known as non-sufficient funds, refer to the status of a bank account that does not have enough money to cover a transaction.

For example, if your checking account has $1,000 and you make a purchase for $1,005, you don’t have a high enough balance to cover it. As a result, your bank will charge you an insufficient funds fee.

How Much Will it Cost You?

Even though you do your best to protect against overdrawing your account, you never know when a mistake could occur. If it does, it’s nice to have an idea of how much it’ll cost you.

In addition to reviewing the fee schedule associated with your account, you can also reach out to customer service for additional information.

The average insufficient funds fee among banks in the United States is between $27 and $35.

How to Avoid Trouble

Before we go any further, here’s something to remember: you always have the ability to contact your bank, ask about the insufficient funds fee, and attempt to negotiate it off your statement.

If you have a long-standing account, without any instances of insufficient funds fees in the past, you’re more likely to have success. It never hurts to try, so you might as well reach out to see what happens.

With that out of the way, let’s discuss the many ways to avoid insufficient funds fees:

1. Track Your Spending

When you keep close tabs on your bank accounts - more specifically your spending - it’s easier to avoid this fee (among others).

Knowing how much money you have makes it easier to avoid a situation in which you spend more than your balance.

Tip: download your banks’ mobile app so you can review your account at any time, such as before making a purchase you’re unsure of. With this data at your fingertips, there’s no more guessing and hoping for the best. Every purchase you make is calculated.

2. Opt-Out

When you open a new bank account, you may be asked if you want to opt into a policy that covers charges in excess of your balance. By doing this, you won’t be denied when trying to use your debit card at a point of purchase.

While this sounds like a good idea, you’re also agreeing to let the bank charge you an insufficient funds fee.

Contact your bank to ask them about your current status, as well as their policy on insufficient funds fees and when they’re charged. You may want to opt-out of protection, as doing so will make it impossible to make a purchase with funds you don’t have.

3. Link a Back-Up Account

Most banks give you the option to link a back-up account to your account, thus giving you access to money that can cover any purchases you make in excess of your balance. Subsequently, should you tap into funds you don’t have in that account, you won’t be hit with a fee.

The easiest way to do this is by connecting another bank account. For example, if you have a checking account, connect your savings account as a back-up. As long as you keep a reasonable amount of money in your savings account, it’s likely to be able to cover any purchase you make in excess of your balance.

Depending on the type of account and your specific bank, you may also be able to link a credit card to your bank account. This works in the same manner as another bank account, serving as a back-up in case of overdrawing.

Tip: just because you link a back-up account doesn’t mean you should abuse it. This is more of a safety net than anything else. Don’t use it as an excuse to spend more money.

4. Apply for an Overdraft Line of Credit

This may sound like overkill, but it can save you a lot of money if you’re the type of person who is always overdrawing on your account.

Not all banks offer an overdraft line of credit, but if yours does you should consider taking advantage. You can typically apply for this in person or over the phone.

Note: even if your bank offers this type of account, you won’t automatically qualify. You need to complete a credit application, thus allowing your bank to consider your credit history and credit score before making a final decision.

If you receive approval, you’re granted an overdraft line of credit, such as in the amount of $500 or $1,000. This account is then linked to your primary account, with it covering any purchases in excess of your balance.

Tip: your bank may also allow you to use an overdraft line of credit to take a cash advance against your checking account. Before you do this, ask about the interest rate associated with the advance.

Insufficient Funds Fees: Questions to Answer

Even if you’re responsible with your money, there’s always a chance you could spend more money than you have in your account. And for that reason, it’s important to have a plan to protect against this.

Here are some questions to answer (even if you’re confident you’ll never make this mistake):

  • What is your bank’s policy regarding insufficient funds fees?
  • Do you have a plan in place for avoiding insufficient funds fees?
  • How much does your bank charge for insufficient funds?

If you don’t know the answers to these questions, contact your bank’s customer service department for guidance. They can answer all your questions, while also providing advice on how to avoid this fee (among others) in the future.

Final Thoughts on Insufficient Funds Fees

In a perfect world, you’d never make a purchase with your debit card that the balance in your account can’t handle. However, mistakes can and probably will happen at some point.

Understanding the ins and outs of insufficient funds can help you formulate a plan for avoiding a fee. And when you do that, it’s one less thing for you to worry about.

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