Banks make in excess of $30 billion dollars a year on overdraft related charges. Overdrafts occur when you have checks and/ or debit card transactions that exceed the balance in your checking account. Some banks will allow these transactions to clear, rather than rejecting them, and charge you $25 – $35 per transaction. Be sure that your bank rejects any transaction that would overdraw your account.
Some banks offer an overdraft transfer service if you also have a savings account with them. For a small fee – typically in the $10 range – the bank will transfer money from your savings to cover a shortfall in your checking account. Many banks will try to sell you on their “overdraft loan” program, in which the bank lends you money to cover your negative balance. There is usually a per transaction fee plus interest on these overdraft loans, which can quickly add up.
Want to avoid overdraft fees entirely? Balance your checkbook regularly (at least once a week) and consider keeping a cushion of several hundred dollars in your account at all times. Don’t let the bank make a fortune because you are being sloppy and lazy with your money habits!