Avoid Overdraft Fees Due to Insufficient Funds

What does “insufficient funds” mean?

“Insufficient funds” is a banking term that refers to not having enough money in your account to cover a payment. For example, if you write a check or set up an automatic payment with the electric company to pay your electricity bill. When this amount is deducted from your account (either because the company withdrew the funds or deposited your check), the bank compares the amount available in your account to the amount due for the payment. If you do not have enough funds to cover the amount, the bank can refuse the payment: no money will be deducted from your account, and the bill will remain unpaid. You may also hear terms like payment denial, bounced check, overdrawn account, or insufficient funds (NSF), all of which refer to not having enough money in the account to cover a payment.

What happens when you are overdrawn?

If you do not have enough money in your account to cover a payment, the bank may simply decline the transaction. But that’s not all that could happen:

• Fees accumulate: When you have insufficient funds, the bank will charge you fees – typically ranging from $27 to $35. You may also be charged by the person or entity you tried to pay. The business that deposited your bad check will incur a penalty from its bank and pass those costs onto you. Often, there is a penalty for failed electronic payments as well. If you send multiple bounced checks in a row, those fees can really start to pile up.
• Your reputation suffers: Banks do not like customers who overdraw their accounts (even though these customers generate a lot of revenue). If you frequently overdraw your account, you could end up in databases that track consumers with a history of writing bad checks. It may become difficult for you to obtain a bank account in the future. The bank may even simply close your account.
• Legal and credit issues: Unpaid bills can go to collections and cause you problems in the future. If you are accustomed to overdrawing your account without overdraft protection, you may ultimately damage your credit scores, and you may face legal issues if it appears that you are intentionally spending more than you can afford.

How to reduce or avoid insufficient funds fees

Banks offer several overdraft protection programs that will cover your payment if your funds are low.

• Overdraft protection: Instead of declining transactions, the bank will pay them as if you had enough funds – but it will charge you a fee of around $35 every time. You still need to replace those funds quickly.
• Requesting a fee waiver from the bank: The bank can charge you the full overdraft fee even if you are short by a few cents. If you are a great customer and rarely overdraw your account, consider calling the bank and requesting a fee waiver. You may get a sympathetic customer service representative on the line who is ready to accommodate your request.
• Overdraft line of credit: If you do not want to pay hefty overdraft fees but still worry about those times you might spend more than you have, you can sign up for an overdraft line of credit. These lines of credit tend to be cheaper than overdraft fees per transaction. Instead of a flat fee, you will pay interest on the amount you “borrowed,” which is usually less than the fees.
• Linking

Your checking and savings accounts: Another way to avoid the most costly overdraft fees is to link your savings account to your checking account. If you overdraw, the bank will withdraw the necessary funds from your savings account. There may be a fixed fee with this option, but it is usually around $10 or so – less than traditional overdraft fees. Check the details with your bank.

• Set up alerts with your bank: Note that whether you enroll in overdraft protection or not, the bank may allow you to make payments when funds are low (and charge you a non-sufficient funds fee). Recurring payments, such as accompanying bill payments or insurance premiums, are likely to be processed automatically, even if you’ve requested the bank to decline transactions when funds run low. You may want to consider setting up alerts or text messages with your bank so that you receive a notification before these transactions are executed, giving you enough time to fund your account or cancel the payment.
• Track your balance: Know your available amount by monitoring your account and balancing it regularly. If you track your balance and upcoming automatic payments and any holds or freezes on your account, you will know how much you can spend even before the bank does. It’s a good idea to review transactions regularly so you can also spot fraud early.

Frequently Asked Questions (FAQs)

How can you withdraw money if you have insufficient funds at an ATM?
You usually need at least $20 plus any fees to withdraw cash from an ATM. If you don’t have that amount, you’ll have to use another method, such as getting cash back from a purchase using your debit card. You can also visit a bank branch in person and ask a teller to withdraw the exact amount you need.

How can you get overdraft fees refunded?
It may be possible to negotiate overdraft fees. There’s no harm in asking for a refund of the fees. If the bank sees you as a good customer who made a small mistake, they may be more likely to refund the amount to you.

Source: https://www.thebalancemoney.com/insufficient-funds-315343