Have you ever nervously swiped your debit card, silently hoping you have enough money in your account to cover the purchase?
Having a purchase declined isn’t just embarrassing. If the item is a necessity, you might have to go without it until you can transfer more money to your account.
In situations like these, enrolling in your bank’s overdraft protection program can help. But these programs aren’t always straightforward. Hefty fees can make overdraft protection an expensive option.
What is overdraft protection?
Overdraft protection is a bank service that allows you to make purchases, even if you don’t have enough money in your account. In many cases, consumers will link another account (such as a savings account or credit card) to their checking account.
If you overdraw from your checking account, your bank will transfer money from your connected account in order to cover the purchase. But this might result in a transfer fee.
In other cases, overdraft protection can mean that your bank covers the purchase and allows your checking account to dip below zero. By doing so, you avoid embarrassing moments at checkout and can rest easy knowing your card won’t get declined — but it could cost you.
How much are overdraft fees?
Banks charge a fee for allowing a purchase to go through even if you don’t have the cash to cover it.
Exact amounts vary by bank, but the median overdraft fee is $34, according to the Consumer Financial Protection Bureau. While that may not seem like a lot to be “protected,” CFPB research states that consumers who opt-in end up paying more in fees than consumers who do not.
Not only that, but banks are profiting big time from your overdrafts, raking in billions of dollars each year just in overdraft fees.
If you overdraft, it’s not just a one-two punch. “When someone incurs an overdraft fee, it’s more common than not to get hit with another one in the same day,” explained Tim Hong, CMO of financial app MoneyLion. At $34 a pop, a few purchases could cause you to pay over $100 in fees.
Is overdraft protection really worth it?
While overdraft protection should protect you, it can be more harmful in some instances.
“Overdraft protection isn’t ‘protection’ so much as it is an annoying fee,” said Hong. Those fees can add up. Plus, since you know transactions will go through no matter what, you might be less vigilant with your spending.
By law, you cannot be automatically enrolled in overdraft protection. You must to opt-in for coverage. To avoid these charges, simply decline the policy.
If you think you’ve already opted out of this service with your bank, it doesn’t hurt to double-check. Many people aren’t aware they’re already signed up for overdraft protection.
What can you do to avoid overdraft fees?
If you want to avoid overdraft fees, opt out of overdraft protection. However, in order to avoid other fees for bouncing checks, you need to stay on top of your finances. It’s important to monitor cash flow so you know what’s coming in and what’s going out.
Monitor your accounts closely so you don’t overdraw. Using your bank’s mobile app, it’s easy to check your account balances daily. You can also set calendar alerts when big bills hit your account, so you know when your balance might be lower than normal.
Additionally, you can check out what bank fees you’ve already paid at BankFeeFinder.com. You might be surprised at how much you give to the bank each year in fees. If anything looks amiss, call you bank and see how you can reduce the charges.
Overall, just stay on top of your account balances and monitor your spending. You should be able to avoid these pesky fees with some due diligence.
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
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