Overcoming the Underlying Issues Behind Overdraft Fees

I used to see an envelope from the bank in my mailbox and get this sinking feeling in my stomach. Sometimes I’d let the envelope sit unopened on the counter for a day, only to be greeted by a flurry of bank envelopes the next day. That’s when I knew for sure that the checking account was overdrawn.

Of course, the first overdraft usually led to more overdrafts, because the fees made it difficult for even smaller checks or debits to clear. It was like being on a tilt-a-whirl at the fair that had gotten stuck in the “on” position for way too long. But there are ways to stop the sickening ride.

The first step is to figure out why you are overdrawing your account. An overdraft isn’t the problem — it’s the symptom. So, what’s causing it?

Some common reasons are:

  • Lack of understanding about how your bank handles transactions
  • Poor organization
  • Procrastination
  • Issues between spouses/significant others
  • Lack of money

Lack of understanding about how your bank handles transactions

How much of your check is available immediately if you deposit it into an ATM? What if you deposit it with a teller? What if it’s an out of state check? What happens if you try to buy something or make a withdrawal and you don’t have enough money in your account? If you don’t know the answers to those questions, a lack of understanding about how your bank handles transactions could be causing you to overdraw your account.

Many people think that deposits are available the minute they make the deposit, and that the bank “won’t let” them spend money they don’t have. Some pending legislation may change that last bit under certain circumstances, but usually deposits are not immediately available for withdrawal, and banks will happily let you spend more than you have. (Overdraft fees are a big source of income.) If you’re unsure about when the funds from a deposit will be available, stop in at your bank and ask or take a look on their web site. And don’t rely on your bank to tell you how much money you have.

Poor organization

If you have little or no idea how much is in your checking account at any given moment, or if you frequently spend money “from the wrong account” (or just plain spending more than you have), poor organization is probably the issue. If you’re never really sure where you stand or what’s going on, it’s time to develop a system.

Just the thought of “developing a system” may seem like too much work. But, add up how much you’ve spent in overdraft fees over the past year. Wouldn’t it be worth it to get to keep that money instead? You could probably even pay someone to set up a system for you and still come out ahead (IF you’ll follow it once it’s set up).

One simple system is to just control your discretionary spending. Figure up how much you need each month for expenses (including irregular expenses like taxes & car tags). Now figure up how much extra you’ll have left. The extra is your discretionary spending/fun money. Get out cash for the fun money each payday. When that’s gone, it’s gone. Everything else goes to bills (and hopefully savings or investments too). As long as you make enough each month to cover your expenses, and you deposit your money the same day you get it, you should be in decent shape.

If spending money from the wrong account is the issue, label your cards and checkbooks. Stick a note on them if need be pointing out what you can use them for. Then check the note before you use the card or checkbook. You can also just eliminate all but one of the accounts.


Sometimes we just don’t want to do things. Personally, I hate going in to the bank for any reason. I just don’t like doing it, and there’s no good reason why. (Although lately my branch has been putting out chocolate chip cookies, which makes the experience a little less painful…) If you let your paycheck sit around because you don’t like making a trip to the bank and that causes you overdraft fees, see if you can get direct deposit instead. Sign up for it and your life will be a whole lot easier.

But, what if you can’t get direct deposit? Find some other way to get your money into the bank ASAP. Maybe your spouse doesn’t mind making the deposit. Maybe you can switch banks so you can use a branch that’s directly on your way home from work. Some banks (like USAA) allow you to scan in checks from your PC, and quite a few banks allow you to mail in deposits.

Or maybe you’ll just have to bite the bullet and do it anyway, the moment you get paid. Don’t even go home first. Go directly to the bank or ATM, and do not pass go. If you need more motivation, ask yourself if paying a company $27 or $35 or whatever it is every day that you don’t make it in to the bank is worthwhile. Don’t kid yourself, those checks you wrote earlier WILL go through at the worst possible moment.

Issues between spouses/significant others

Issues between spouses/significant others can be difficult to overcome. If that’s the case in your household, start by sitting down together and figuring out what kind of issues they are. Is it a lack of communication? (One person spends money but forgets to tell the other.) That can often be resolved by coming up with a plan that you both agree to and have input on for communicating expenditures on a regular basis.

Or is it a lack of integrity or a power struggle? (Both spouses profess to agree to a plan, but one spouse then goes on to ignore the plan and spend as they please.) You may want to seek the help of a professional for those kinds of issues, especially if you’ve tried to work them out on your own already without success.

Lack of money

Sometimes you just don’t have the money. Either you’re hoping that you’ll get it in time, or you just plain have to eat and so you decide that paying the fees is the lesser of two evils. If this is the case, examine why it is that you don’t have the money. Do you follow a budget? If so, does it seem like you should be ok each month, but somehow you’re not? If that’s the case, start with a commitment to track spending. Probably you’re spending more money than you think you are. Find out where, and you can plug the holes.

But what if you really just don’t have enough? In that case, prioritize. Pay for the most important things in your life first (shelter & food). Then pay for things that help you make money (like transportation). Everything past that point is gravy if you can pay it, and if you can’t, you can’t. Get help from public organizations or your church. Even if you’re not religious, churches can help and point you to additional resources. Try asking for a raise as well, cutting expenses if there’s anywhere to cut, and getting additional work. Changing your situation is the answer here.


  • Overdraft fees can be a killer!

    You should know what they are, you should be organized enough to avoid them.

    And, if you’re normally on track and never get them, if you should have a mishap, contact your bank and inquire about it.

    Sometimes, you can get them removed.

  • Personally, I hate overdraft fees. That is why I talked to my bank and signed a piece of paper and from now on I cannot spend a dime more than I have unless it is a reoccurring transaction.

    Very effective and has saved me tons of money already :)


  • Sounds like a great idea, Tomas.

  • I really need to get rid of my overdraft, as its effectively burning money!

    As soon as i start getting my finances on track i will reduce my overdraft as a deterrent for using it..!


  • Scott, do you mean you have an overdraft protection line?