Overdrafting your checking account can be a hassle, and a potentially expensive hassle at that. You could face overdraft fees or end up missing payments if your transaction is declined. Here are the basics about overdrafts and 5 tips to avoid them..

What is an overdraft?

An overdraft occurs when you don't have enough money in your checking account to pay for a withdrawal, cashed check, fee or transaction.

Is an overdraft the same thing as a non-sufficient funds (NSF) fee?

Not exactly. Think of it this way:

• An overdraft happens when you don’t have enough funds for a transaction (as described above).
• An NSF fee is charged when you overdraft your account and the bank/credit union declines your transaction.

Learn more about overdrafts and NSF.

What is overdraft protection?

When an overdraft occurs, your bank/credit union may pay for the transaction, but they will charge you a fee for this service, a.k.a. overdraft protection. Whether the bank/credit union will or won’t pay for the transaction will be based on their overdraft policy and whether you opted into an overdraft protection program.

How much does overdraft protection cost?

The cost for overdraft protection varies by institution. In general, expect to pay about $35 per overdraft. (Affinity cares about your financial well-being, so we offer several overdraft protection options.)

Is there a limit on how many times I can overdraft my account?

Ideally, you never want to overdraw your account because it can hurt you, your bank/credit union, and the party you’re trying to pay. Banks/credit unions set their own overdraft policy. They could close your account and send you to collections if you exceed their threshold for overdrafts. Be sure to familiarize yourself with your bank or credit union’s policy, and always, aim for zero overdrafts.

What should I do if I overdraft my checking account?

• Deposit or transfer money into the checking account to get back to a positive balance ASAP. Some banks/credit unions might charge multiple overdraft fees if you continue to make transactions that overdraft your account. Plus, transferring money into the account quickly can help prevent other associated fees, like extended overdraft fees and continuous negative balance fees.
• Ask your bank/credit union about a grace period or deadline to add money to your account to bring it back to a positive balance and avoid fees.

Can overdrafts affect my credit score?

If your bank/credit union refuses to process an overdraft, the affected merchant may report your late or missed payment to the credit bureaus, which may have an impact on your credit score. Plus, you’ll be responsible for making the original payment and paying any associated fees.

How to avoid overdraft fees

Here are 5 tips to help you stop overdraft fees before they occur:

1. Sign up for account alerts. Monitor your balance and transactions by setting up account alerts. This will help you avoid overdraft fees because you can create alerts that let you know when your balance falls below whatever dollar amount you pick. (Affinity offers account alerts through Online Banking and our Mobile App.)
2. Pay with cash. Checks may bounce, but cash never will.
3. Keep a “buffer” in your account. Don’t let your account balance get close to $0. Instead, pick a dollar amount based on your budget. That limit could be $250, $500, $1,000 or whatever makes sense for your budget. Then, always keep that amount of money in your account, just to be safe. Decide on a certain amount that will always be in there, and never dip into it.
4. Use direct deposit. Use direct deposit for your paycheck so that you have access to your money immediately.
5. Link to another account. Your bank/credit union might let you link your checking account to your savings account, money market account or line of credit at the same bank. Once the accounts are linked, if you don’t have enough money in your checking account to cover a transaction, money will be transferred from the linked account to avoid an overdraft. Your bank/credit union may charge a fee for the service. Also, if you link to a line of credit, you may have to pay interest on the overdrawn amount and also pay a transfer fee. Confirm these details with your bank/credit union.