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How to Avoid Overdraft Fees

American households pay on average $117 per year in overdraft fees. Here's how to make sure it doesn't happen to you.

By Lili • Dec 23, 2021

3 mins

Did you know that on average, American households pay $117 per year in overdraft fees?

If you don’t know what an overdraft fee is, good for you! Just keep reading to keep it that way. 😉
If you have experienced overdraft fees in the past, you should keep reading as well to make sure this doesn’t happen again. Because there are now tools to avoid them.

What is an overdraft fee?

Some banking transactions don’t happen instantaneously. Sometimes there can be a delay or a change in the total amount between the time you swipe your debit card and the moment the money gets actually moved from one account to the other. For example, let’s say you have $100 left in your account. You invite your mom to eat a meal at a restaurant for $50 (good kid!). And as you were finishing your dessert, your $45 cellphone bill autopay got debited from your account. Now you have $55 left on your account so when your waiter swipes your card, the $50 transaction gets approved. So far so good. But you add a 20% tip on the receipt (good customer!), making the actual transaction $60. When that transaction actually posts to your account that night or next day, you will be $5 in the red. Oops! 

Most banks will not only freeze your account until you cover the $5, but will also charge you a penalty for letting that happen: the infamous overdraft fee – it is usually $35 per occurrence, even if it’s for a very small amount. 

How do I avoid overdraft fees?

The good news is there are a few ways to avoid this really annoying fee – if you already have a low balance, you certainly could do without an extra fine. And you shouldn’t get penalized for leaving a tip!

  • No fee banking

The easiest one is to choose a bank that doesn’t charge overdraft fees. Most digital banking services don’t. And yep, you’ve guessed it, Lili is one of them.

  • Stay alert!

Keep track of your expenses and autopayments by turning on instant notifications and setting up alerts when your account reaches a low balance.

  • Act fast

If you notice an overdraft or get a text message (because you have wisely turned on your notifications!) you can try to avoid the overdraft fee by immediately adding money to your account to cover the deficit. Banks will usually not charge you an overdraft fee if you cover it within the same day.

  • Dig into the savings

If you’re with a bank that charges an overdraft fee and also have a savings account with them, you should have the option to automatically dig into your savings account to cover transactions from your checking if the funds are insufficient.

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Written by
Team Lili

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