How to Avoid Overdraft Fees During the Holidays

By Rebecca Lake
December 10, 2020

When mapping out a holiday shopping budget, there’s one expense we often overlook: the (sneaky) overdraft fee!

In fact, Americans paid a total of $11.68 billion to banks for overdraft-related fees in 2019 alone. And for a fee that’s completely avoidable, that number is crazy.  

But don’t be scared. If you’re trying to stay away from bank fees this holiday season, we’ve got your back –  with seven of the smartest ways to do it. 😎

  1. Open a savings account (if you don't already have one)
  2. Link your checking account to your savings account
  3. Weigh the pros and cons of overdraft protection
  4. Consider a bank account that's overdraft-fee friendly
  5. Set up alerts to track your bank account balance
  6. Use prepaid debit cards for holiday shopping
  7. Shop with a credit card instead
  8. Don't let bank fees dampen your holiday cheer

Open a savings account (if you don't already have one)

Let’s start with the basics: Instead of using your debit card to spend money from your checking account, stash your whole holiday budget in savings instead. 

That way, when you’re ready to score some ‎️‍🔥 gifts, you can just withdraw the cash you need in one go. Plus, by not using your debit card, you won’t have to worry about surprise charges at all. 

If you plan on making more automatic savings deposits through the winter season, another solution could be to space out your withdrawals. Just keep in mind that some banks charge (yet another) fee for making extra withdrawals from your savings account each month!

Link your checking account to your savings account

If avoiding credit card debt is your goal, using your debit card or writing checks to pay for your holiday buys could help you pull that off! You just have to be super careful, because all it takes is accidentally going over your balance one time to trigger the dreaded overdraft fee.

Instead, try linking your savings account to your checking account. That way, you can easily move money between the two as needed. This could come in handy if you want to make a big purchase, but you know it could put you in the red. You can avoid all that hassle by simply transferring some cash into your checking first!

Weigh the pros and cons of overdraft protection

TL;DR: Overdraft protection allows banks approve charges on your debit card, even if they go over your account balance. 

Sounds too good to be true, right? Here’s the catch: instead of paying the standard overdraft fee, you might have to pay a smaller fee to your bank for the convenience of them transferring your money from savings to checking. 

Consumer Financial Protection Bureau rules require you to opt-in to overdraft protection for that peace of mind, (which could save you money if you do mistakenly overdraft.) Just remember that, in most cases, you’d still be paying a fee to the bank for that automatic transfer. Sigh. 

On the other hand, opting out means you won’t pay any overdraft-related fees. Super tempting, we know, but it’s important to think about which answer makes more sense for you and your shopping style. 

Consider a bank account that's overdraft-fee friendly

Unsurprisingly, your choice of bank could play a big part in your overdraft fee situation through the holidays, and any time of year. 

If the one you’re with is easy to hit you with fees, finding another banking option could be a good idea. Chime offers fee-free overdraft with SpotMe for eligible members. This feature “spots” you up to $100 on debit card purchases with zero overdraft fees. When you consider the average $34 overdraft fee from traditional banks, that kind of backup could save you a pretty penny in the long run.

Set up alerts to track your bank account balance

Using bank alerts can be a super smart way to stay on top of your holiday spending and avoid overdraft fees. 

  • Transaction alerts can help you keep tabs on what you’re spending and where
  • Low balance alerts let you know when your bank account balance is getting low, at which point you can make a deposit to boost your balance.

All in all, we 💚 bank account alerts. They help you monitor your spending, minimize the risk of triggering a fee, and even keep an eye out for suspicious purchases. What’s more, bill payment alerts can even help you hit your due dates and avoid late fees. Win-win-win! 

Use prepaid debit cards for holiday shopping

Prepaid debit cards can be yet another way to master your shopping list while steering clear of fees. 

How? With a prepaid card, you choose the amount to put on it, and then use that money to make purchases. Once you’ve spent your balance, you won’t be able to use it again until you reload.

This is a super simple way to keep you from blowing your budget, since it limits you to just the money on the card. Plus, you can avoid overdraft fees at the same time. Just keep in mind that you might pay a small fee to reload the card, depending on who your prepaid debit card issuer is.

Shop with a credit card instead

Credit is king…and that goes for avoiding overdraft fees, too! Plus, if you’re getting points on the stuff you buy, using a credit card can also be incredible for your wallet For example, if you’re applying cash back rewards as a statement credit, they can be used to offset holiday shopping.  

Bonus: If you’re paying on time and keeping your balance low, using a credit card can also help you build credit! 🎉 You can do this with a secured card if you’re brand-new to using credit, or a regular unsecured card. 

Just remember to make a plan for how to pay off your holiday buys in the new year. Paying it off ASAP can keep interest charges as low as possible. If you think you might need extra time to pay it off, it’s worth looking into a 0% APR balance transfer offer.

Don't let bank fees dampen your holiday cheer

Overdraft fees can be a real bummernot to mention a drain on your budget. But there are lots of things you can do to keep them at bay during the holidays (and all year-long)! It starts with understanding your bank’s overdraft policy. From there, you can take steps to avoid fees by building your savings and exploring other ways to enjoy the holidays with financial peace of mind. 🙏

Last but not least, remember: If you do end up getting hit with an overdraft fee, don’t assume it’s set in stone. If it’s your first fee, your bank may be willing to offer a waiver. You never know till you ask, so spare a moment in between shopping, decorating, and mailing out holiday cards to call your bank and ask if they could put some cash back in your pocket! 

Rebecca Lake has been writing about personal finance and business for nearly a decade. Her work has been featured on CreditCards.com, Credit Karma, Credit Sesame, and other personal finance sites.

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