What are overdraft fees and how do I protect my account?

Understanding an overdraft charge and how to avoid it

An overdraft (OD) occurs when you withdraw more than the current balance in your account through a card swipe, a check, automatic payment or other type of withdrawal. The bank will lend you enough money to process the transaction but will charge a fee, typically around $35, for this service.

Say you have $50 in your account, and you spend $100 on an unexpected expense. The bank will lend you $50 to afford the entire transaction, and then charge a $35 fee for the overdraft coverage. You are then responsible for depositing $85 to bring your account balance back to $0. If you’ve signed up for automatic or recurring payments for things like utility bills, a gym membership, or other subscriptions, make sure you know the due dates for each to ensure there’s enough in your account to afford those payments.

It’s also important to note that an overdraft fee is charged per transaction, so if you withdraw amounts exceeding your balance multiple times in a day, you will have multiple overdraft fees, too.

Overdraft vs. nonsufficient funds fees

A nonsufficient funds (NSF) fee, typically around $20, is charged when the bank does not allow a transaction to process if it will overdraw your account. Rather than letting your balance drop below $0 and lending you money to cover the difference, the bank chooses to reject the transaction.

It’s important to note that a transaction potentially could be represented on your account multiple times resulting in multiple fees for the same transaction over a period of time. For example, if a utility bill payment was returned for insufficient funds, the utility bill company could attempt to run that same payment the following day, incurring more fees.

Financial institutions set limits on the maximum number of OD and NSF fees charged per day, which is a line item you can find in the fee schedule. Typically both fees count toward the daily maximum limit, but be sure to review the bank's policies.

Avoiding overdraft fees

  1. Join an overdraft protection program. Programs vary but generally a lesser fee is charged when you authorize an automatic transfer from your savings account to your checking account to avoid an overdraft.
  2. Track your spending through a mobile app, online banking or a check register to ensure you have sufficient funds to afford transactions.
  3. Transfer funds from another account through digital banking or in person to prepare for upcoming expenses.
  4. Build a budget that accounts for monthly bills and other payments, plus extra savings to prepare for any surprises.

Overdraft and nonsufficient funds fees may sneak up on you if you’re not prepared. Tracking your balance is a simple step that may help you steer clear of fees and remain in good standing with your institution.

Review First Federal’s protection programs at ffbkc.com/overdraft or chat with our team at (816) 245-4225 for more information.

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