Overdrafting and How to Avoid It

The Earnin blog reports:

"Overdraft protection is a banking service consumers can opt into to overdraw their checking accounts for a fee...'Can I overdraft my debit card?' you ask yourself. 'What about my credit card? Or my savings?' You know it’s possible to overdraw your account with online payments, and you’ve heard of people doing it with checks, so it’s understandable to wonder what other kinds of accounts allow you to make transactions without sufficient funds...Let’s say you had $5 in your account this morning, but today is payday, so you should have plenty of money by the afternoon. Unfortunately, your employer’s payroll system takes longer to deposit your paycheck, so you won’t have the funds you expect some time until next business day. You use your debit card to buy a $7 slushie from the convenience store without knowing your real balance. The transaction goes through because you have overdraft protection, but now you owe the bank $35.47 — $2 for what it loaned you and $33.47 for the service. You can call the bank and try to explain, but you just purchased a really expensive slushie if they decide not to waive the fee. It was such a small difference, too, but overdraft fees are fixed. Your debit card is connected to your checking account, so debit card overdrafts are a common way to incur such fees. In addition, banks will often set overdraft limits. Even if you have overdraft protection, this means you cannot borrow more than your bank will allow if you overdraw your account (such as $500 or $1,000)...Because using your credit card entails borrowing money from your credit issuer, there is technically no finite amount of money in an account to withdraw from. However, it is possible to reach and exceed your credit limit. Your credit limit is the maximum amount of money your issuer is willing to let you borrow. This number varies between different cards, institutions, and individuals, so it could be as little as $200 (such as putting down a deposit on a secured card) or as much as $500,000. Your card will decline if you attempt to make a purchase that pushes you over your credit limit. Unless you have over-limit coverage, that is. Similar to overdraft protection, over-limit coverage is a service you must opt into with your credit issuer that enables you to exceed your credit limit in exchange for a fee. Your bank cannot charge you fees for reaching your limit, only if you agree to surpass it. Keep in mind, though, that using too much of your available credit could negatively impact your credit score. Experts suggest using approximately 30% of your credit limit. For instance, if you have $15,000 in available credit, then making more than $4,500 worth in purchases or expenses could make you seem like a risky borrower...Fortunately, a savings account can only be emptied, not overdrafted. That said, different rules influence your ability to withdraw from your savings. US law dictates that you cannot make more than six convenient withdrawals from your savings account per month ('convenient' includes transfers made via phone, online, check, etc.). Your bank may charge you a fee if you exceed this number of withdrawals or refuse the transaction. However, it’s possible to exceed the six-withdrawal limit if you use 'inconvenient' methods, such as visiting a bank branch in person, taking out cash from an ATM, or requesting a check...Though you cannot overdraft savings accounts or credit cards, it’s beneficial to be careful with your checking account, so you avoid overdraft fees. A few ways you can elude overdraft fees include: 

• Opting out of overdraft protection;
• Enabling low-balance alerts, so you know when you are at risk of overdrawing your account;
• Linking your checking account to your savings as a backup. 

You can also use financial apps to manage your various accounts and keep a watchful eye on your financial situation. If you have a low balance with no choice but to pay a necessary expense, then Earnin allows you to access up to $100 per day from your paycheck before the typically scheduled date without taking out a loan. Likewise, Mint is helpful for budgeting, and Peak can help you visualize your financial goals. You’re not alone if you’re worried about overdrafting, but rest assured, you cannot overdraft a credit card or savings account."