6 Ways to Avoid Pesky Overdraft Fees

As of Aug. 15, 2010, banks must get a customer's explicit consent, often called an "opt in," to charge overdraft fees on single debit card purchases or withdrawals from ATMs.

This explicit consent isn't required for checks, pre-authorized electronic payments or recurring debit card charges. In those cases, the bank can decide whether to cover the transaction, and if it chooses to do so, charge a fee for that service, according to Carol Kaplan, a spokeswoman for the American Bankers Association in Washington, D.C.

Yet, despite this bifurcated system in which consent is required for some overdrafts but not others, one thing is still certain. The easiest way to avoid overdraft charges is to not opt in to the service.

"Some people just shouldn't opt in (because) they are challenged in limiting their spending or spending within their means," says Todd Sandler, head of product strategy at ING Direct, an online bank in Wilmington, Del., that doesn't offer fee-based overdraft protection.

If you don't opt in to overdraft protection and your transaction is declined, you shouldn't be charged a fee.

"There is no cost in a debit or ATM transaction that is declined," Fox says.

Most overdrafts occur due to relatively small sums, often $20 or less. That means you can avoid a lot of overdraft fees by keeping a cushion in your checking account at all times just in case a deposit is delayed or you make a mistake in your register.

"A hundred dollars would help," Fox says. "Two or three (hundred) is even better."

Banks offer customers multiple ways to track their checking account balances, Sandler says. Online banking, ATMs and automated telephone voice response systems are but three examples.

That information can be helpful, but you should still track your balance yourself because the bank's balance might not reflect all the payments you've made or scheduled.

"The online balance doesn't necessarily know that you have a pre-authorized mortgage payment due tomorrow," Fox says.

The inability to opt out of overdraft protection on automatic payments is a good reason to keep withdrawals from your account on manual so you can authorize and track each payment.

"If pre-authorized routine payments are knocking you in the red, another way to handle that is to be the initiator of when each payment gets made," Fox says.

Automatic payments are especially risky if you forget to record them in your check register because each time a payment goes through unnoticed, you might not have enough money in your checking account to cover the next withdrawal.

The opposite is true for direct-deposited funds such as paychecks. These items typically are available immediately while paper checks usually are put on hold for a while. Direct deposits can help you ensure you always have enough money in your account to avoid overdrafts.

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