How to get rid of overdraft fees

Getting Your Bank to Waive an Overdraft Fee

The main thing to understand is that if you have been charged an overdraft fee and don’t want to pay it, you should ask your bank to waive the fee. Many banks are understanding and, for the most part, know the value of assisting customers on this issue.

The overdraft protection law stops banks from automatically enrolling customers in overdraft coverage. Transactions would be approved, but the bank could charge fees. The law only applies to transactions that are not pre-authorized, such as ATM withdrawals and debit card transactions.

You can commonly expect banks to charge a maximum of 4 to 6 overdraft fees per day per account, though a few outliers do allow as many as 12 in one day.

Overdraft fees are charged when you don’t have enough cash in your account to cover a payment you’ve made, and as part of an overdraft protection service, the bank covers the difference for you.

Account closure

But banks don’t keep negative accounts open indefinitely. If you overdraw an account too many times or let an account stay negative for too long, your bank will likely close the account.

Using your overdraft too much

Overdrafts can be useful for some people. They can help you avoid fees for bounced or returned payments. These happen when you try to make a payment but your account doesn’t have enough money in it. But overdrafts should only be used for emergencies or as a short-term option.

When You Go Negative

When your account gets to a negative balance, your bank will probably charge you an overdraft fee that makes your account even more negative. Sometimes, it will charge you multiple overdraft fees for each transaction that happens when you have no money.

If you can’t pay back an overdrawn bank account, your bank may charge fees or close the account. You‘ll still need to pay the debt, and the problem can prevent you from opening another account.

If you go over your arranged overdraft limit, your bank will report this to your credit file. A prolonged period of being in an unarranged overdraft could lead to the bank defaulting your account, which will be recorded on your file for six years.

You‘ll have to pay off the overdraft eventually, usually after two or three years. The way banks try to encourage this is to reduce the maximum 0% overdraft each year – the idea being that by the time the 0% ends, you‘ll have paid it off. Fail to do so, and you‘ll be subject to astronomical charges and fees.

If you have an overdraft and your balance is below zero, you can still switch accounts using the Current Account Switch Service. Having a negative balance won’t stop the switch from going through. But remember, switching doesn’t mean that you’ve paid off the money you owe to your old bank.

If you take out more money than you’ve agreed

The bank will usually return (bounce) any cheques you write and other payments such as direct debits from your account. If you have an agreed overdraft and you take out more than the limit, the bank might also reduce or stop your overdraft.

When you go into your overdraft, it will show on your bank statement or online banking as a minus number. The bank tends to charge you fees when this happens, so it’s important to avoid doing this as much as you can.

If you’ve had your overdraft cancelled without warning you need to first complain to your bank, whether or not you also received bank charges. While bank charges reclaiming is on hold for most, you can still demand your charges back if you’re in financial hardship.

Generally, though, credit cards work better for planned or predictable expenses that you intend to pay off over time. Overdrafts work best in emergency situations, saving you the embarrassment and hassle of a check being rejected for insufficient funds.

You’ll usually be able to borrow more money than you could with an overdraft. If you’re borrowing over a longer period of time, taking out a loan will usually be cheaper than using an overdraft as the interest won’t be as high.

With the average rate nearly 15 percentage points lower than the cost of many overdrafts, the chances are you can find a card which charges a lower rate than you’ll pay on your current account overdraft. Indeed, credit card purchase rates start at as low as 7.9 per cent, according to Moneyfacts.

Absolutely. Regularly using an unarranged overdraft can affect your credit rating because it shows potential lenders that you struggle to manage your finances. If you have used an unauthorised overdraft read our guide to improving your credit rating.

But if you’re stressed about how an overdraft will impact your overall financial health, take a deep breath: Checking account overdrafts don’t directly affect your credit score. They can, however, indirectly affect your credit if you don’t pay what you owe.