Managing Your Overdraft Options

When a bank customer doesn’t have enough funds in their checking account to cover a payment, many banks will cover the difference. This allows you to withdraw more money than is available at the time the transaction posts to your account, depending on the kind of account you have. However, this comes with the caveat that such overdraft coverage results in a fee each time a transaction posts to the account while it remains with a negative balance and may incur additional fees while the account remains in a negative balance position.

If the bank customer does not address the negative account balance by replenishing the account with sufficient deposits to bring the account to a positive available balance (including the overdraft fees incurred on the account) and continues to engage in transactions that exceed the account’s available balance, the account will continue to incur overdraft and other additional fees.

There are several ways to stay on top of your financial activity to avoid overdrawing your account.

Do your research

Talk to your banker to get an understanding of your overdraft options. Receiving overdraft coverage from your financial institution is not mandatory and you can choose to opt-out. Your banker also may be able to provide additional resources for avoiding overdraft fees. For example, if you have a savings account or line of credit with the same institution as you have your checking account, you may be able to link the accounts to cover funds in the event you overdraw your checking account. Some banks also offer accounts that do not have overdraft fees at all, like First National Bank’s eStyle account, so it is important to ask the right questions to make sure that you’re getting a product that truly suits your unique banking needs.

Money monitoring

Another helpful conversation to have with your banker is to ask if they offer account notifications that can alert you when your account is getting below a certain threshold, so you can be proactive in addressing the account balance for upcoming purchases. Get into the habit of checking your account’s available balance and activity on a regular basis — which is now easier than ever through banking apps on your phone, online banking, in branch or through ATM visits — and especially when you have a low available balance, before making large purchases or have a significant pending automatic payment.

Developing and sticking with a budget is another easy way to stay on top of your finances. Think about your income versus regular expenses and bills you may have set on autopay.

To learn more about overdrafts and how to effectively maintain your account, view our Financial Insights video titled "Managing Your Checking Account" today.