While debit cards offer a convenient method of payment without the high interest rates associated with credit cards, the overdraft fees you can incur with a debit card can eat away at your bank account. With responsible use, you can avoid overdraft fees when using your credit card, but it is important to know where you can go wrong in order to avoid it. Overdraft fees can quickly add up, especially when you take into account that most banks charge the largest purchase first, therefore causing many smaller purchases to each cause an overdraft fee.
Open a savings account
A savings account is always a good thing to have around, but it can be especially helpful in avoiding overdraft fees. Tie the savings account to your checking account and set it up to where money is withdrawn from savings if you overdraw on the checking account. Depending on your purchasing habits, a few hundred dollars should be enough to cover most incidents.
Keep detailed records
When everyone only used checks to spend money from a checking account, they were a lot better about keeping records about how much money they had left. Every purchase went in the checkbook register. Now the convenience of debit cards has lured most people away from being as diligent with their records as they should be. After all, isn’t that the point of a debit card? This can have serious consequence though, if you lose track of your account balance or forget about those outstanding checks. If you use online banking, remember to subtract the amount of any outstanding checks when determining how much money you have left.
Read the terms of your debit card
The terms and conditions of your debit card can be almost as exciting to read as a dictionary, but knowing what you are responsible for can save you money in the long run. Find out what your bank’s policy is on the order of charging transactions, online banking, ATM fees, and any other rules determining how purchases are charged to your checking account through your debit card.
Don’t use your debit card for automatic bill-pay
The new federal rules reducing the impact of overdraft fees do not apply to automatic bill-pay. Be aware of where you use your debit card to sign up for subscriptions and automatic bill-pay, and know how to cancel these charges if necessary.
“Overdraft Bank Fees: How To Avoid Them With New Fed Rules” Connecticut Watchdog.