When you write a check, withdraw money from an ATM, use your debit card to make a purchase, or make an automatic bill payment or other electronic payment for more than the
amount in your checking account, you overdraw your account. Your bank has the choice to either pay the amount or not. If it pays even though you don’t have the money in your account, you may be
charged an overdraft fee. If your bank returns your check without paying it, you may be charged a bounced-check or non sufficient funds fee. In addition to the fee your bank charges you, the person
or company that you wrote the check to may charge you a returned check fee.
The best way to avoid overdraft and bounced check fees is to manage your account so you don’t overdraw it. Keep track of how much money you have in your checking account by keeping your account
register up to date. Record all checks when you write them and other transactions when you make them. And don’t forget to subtract any fees. Pay special attention to your electronic
transactions. Record your ATM withdrawals and fees, debit card purchases, and online payments. Don’t forget about automatic bill payments you may have set up for utilities, insurance, or loan
payments. Keep an eye on your account balance. Remember that some checks and automatic payments may not have cleared yet. Review your account statements each month. Between statements, you can find
out which payments have cleared and check your balance by calling your bank or by checking online or at an ATM.
Many banks offer courtesy overdraft protection or bounce coverage plans so that your checks do not bounce and your ATM and debit card transactions go through. With these plans, you’ll still pay
an overdraft fee or a bounce coverage fee to the bank for each item. But you will avoid the merchant's returned-check fee and will stay in good standing with the people you do business with.
Banks, savings and loans, and credit unions may provide other ways of covering overdrafts. You may be able to link your checking account to a savings account you have with the bank. If you overdraw
your checking account, the bank can transfer funds from your savings account to your checking account. You can also set up an overdraft line of credit with the bank. You need to apply for a line of
credit, just as you would apply for a regular loan. If you overdraw your account, the bank will lend you the funds by using your line of credit to cover the overdraft. You will pay interest on this
loan, and there may be an annual fee, but the overall costs may be less than the costs for courtesy overdraft protection plans. Other option is to link your account to a credit card you have with the
bank. If you link your account to a credit card, any overdraft amount becomes a cash advance on your credit card. You will probably be charged a cash-advance fee, and interest charges on the advance
will start immediately. The cost of this option depends on the interest rate on your credit card and how long you take to pay back the advance.
Sometimes mistakes happen. If you do overdraw your account, deposit money into the account as soon as possible to cover the overdraft amount plus any fees and daily charges from your bank. Depositing
money into your account can help you avoid additional overdrafts and fees.