Fight overdraft fees: How to outsmart your bank and never pay penalties again

All you wanted was a Diet Coke, but you didn’t have any cash. So you whipped out your debit card and went on your way.

Little did you realize that last night’s pub crawl drained your checking account, dropping your balance to $0.53. Good thing you had the foresight to get overdraft coverage from your bank, right? That ensured your transaction was accepted even though your checking account was nearly empty.

Here's the catch. Your bank charged you a fee — typically about $33, according to a Bankrate report — just so you could avoid the embarrassment of having the purchase declined. That means you just bought yourself a $35 soda.

How. Did. This. Happen?

Overdraft "protection" isn't worth the price

Your financial institution probably offers an overdraft protection service, which might also be referred to as overdraft privilege, overdraft protection or courtesy pay. The service allows you to make transactions on your account even if you don’t have enough money to pay for them.

Of course, nothing in life is free — and boy, this isn’t either. In fact, this service is downright expensive, considering the median overdraft fee we previously mentioned.

Depending upon your account's terms, your financial institution can allow for multiple transactions during times when funds are not available, with the overdraft fee charged for each separate transaction. That could add up to hundreds of dollars if you don't realize you're overdrawn.

... So, don't opt in

Banks want to give you overdraft protection because they make literally billions of dollars off this optional service. According to a CNNMoney analysis, the top three banks alone made $6.4 billion from ATM and overdraft fees in 2016. 

But banks can't force you to get this service. Since 2010, bank customers and credit union members have to sign an "opt-in" agreement to provide for overdraft coverage for ATM and debit card transactions. By not opting in, your  transaction is simply declined if you don't have the funds. 

"You must be extremely careful if you decide to opt in for courtesy pay," Mike Schenk, vice president of economics for the Credit Union National Association, told Mic. "Have a conversation with your financial institution and read the disclosures to know how often the fee can be applied. Ask what would happen if you were to conduct multiple transactions over a period of time when you don’t have enough money in your account."

You can even get overdraft fees waived

So you got slammed with an overdraft fee. The good news is you may not have to pay it. Start by calling up your bank and politely asking to have the fee waived.

"Regardless of the barricades your bank representative might put up to deny your request for a waiver, press on with kindness," Michael Galvis at GoBankingRates advised. 

If a straightforward request doesn't work, focus on what a good customer you've been over the years. You could also try visiting your bank branch in person and making an appeal — or just call again and speak to a different rep.

Here's how to never pay overdraft fees again

If you've been stuck with overdraft fees, you've not alone: One in 10 people between the ages of 18 and 25 incur more than 10 overdrafts per year, according to a 2014 study from the Consumer Financial Protection Bureau. On average, opted-in customers of all ages pay more than $250 annually in overdraft and insufficient fund fees.

Don't be one of these people.

Download and use your bank's online app. Not only does it provide quick and easy access to your account balance at all times, you can also receive automatic notifications if your account balance drops below a certain amount.

Next, link multiple accounts to avoid overdraft fees. "If you perform a transaction and there isn’t enough money in your checking account, you can have money automatically taken from savings or another account to cover the charge," Schenk said. 

Not happy with your bank's overdraft policies? It may be time time to find a new one. 

"Compare banks and credit unions," Schenk said. "Credit unions typically have lower fees and better rates, so it’s always important to comparison shop."

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