How do I Avoid Overdraft Fees?

Overdraft fees are fees that are incurred when one withdraws money in excess of the balance of his account. Sometimes these fees are incurred because of an oversight on the part of the account holder. In other cases, they may occur because of fraudulent activity connected to the account. In order to avoid overdraft fees, it is important to be aware of one's own account information and to be prepared for the possibility of identity theft or other fraudulent activities that may result in undesired withdrawals. In rare cases, one may find it necessary to withdraw more money than is present in one's account; even in this case, overdraft protection and intelligent money management can be used to avoid undesired fees.

The first and most important aspect of avoiding overdraft fees is simple awareness of one's financial situation. By checking the balance of an account several times each week, one knows how much money he has and is able to avoid withdrawing too much. Such vigilance can also alert one to erroneous or fraudulent behavior connected to the account, often before any undesired charges have even been incurred. It is also important to focus on account history — and not just balance, as the specific charges on the account can often be better indicators of mistakes or fraud than the total available balance.

Many banks offer various forms of overdraft protection so that, even when one does withdraw too much money, overdraft fees will not be charged. Some banks have an "overdraft limit" to which one can overdraw one's account before facing additional charges. Interest may or may not be charged on the overdrawn money, as it is practically a loan from the bank. Other banks may allow an individual to link an account to another account or to a credit card. When the account is overdrawn, the remaining balance due is charged to the other account or to the credit card, so the primary account is not actually overdrawn and the bank does not need to charge overdraft fees.

In some cases, it is possible to avoid overdraft fees simply by placing more money in the account before the overdraft is processed by the bank. Many banks do not actually note that the account is overdrawn until the end of the business day. A debit early in the day offset by a credit later in the day may not result in any overdraft fees.