How Can You Prevent an Overdraft?

Whether you are a banking novice or a veteran financial maven, you need to understand the terms and conditions by which your banking institution offers overdraft protection. Numerous provisions may apply, depending on your banking arrangements and your past credit history. You can link up a banking checking account to a savings account, for instance, to self supply overdraft projection and thus avoid the fees that typically coincide with overdrawing an account.

Alternatively, you can apply for what are known as overdraft lines of credit, basically, your banking center will allow you to borrow past the amount of money in your account (up to a limit, of course). You pay for this privilege both in terms of fees and interest rates, but the initiative offers you a way to weather certain financial storms.

Your best protection against having to use a default overdraft mechanism is to budget effectively and conservatively. Store up a nest egg to handle emergency expenses. This should typically be three to six months worth of living expenses. In addition, have at the ready other forms of last minute financing, credit cards, easy to liquidate investments, and savings accounts, to avoid having to tap into your overdraft banking protections and thus siphoning money to the bank for no reason.

In addition to budgeting correctly, you need to pay attention to your check book balance. Work with a banking associate or a financial counselor to ensure an accurate lager of personal checking transactions. Don't get caught off guard by big ticket purchases or tax season, for instance.

In addition, if you have to write a spate of checks on an already nearly overdrawn account, talk to your creditors to see whether or not you can postpone or partially defer some bills. This way, you can avoid the interest and finance charges that your banking center will likely apply. Do some back of the envelope calculations before you take action.

Calculate how much interest your credit card or your creditor arrangements will cost you, and compare those fees to the overdraft charges that your banking center will charge. Finally, be aware that certain types of overdraft protection, such as ad-hoc coverage, may be dispensed at the discretion of banking executives, so don't count on them as you create your payment plan.