When exactly your bank credits or debits your account can have a significant impact on your cash flow and available balance. Below, we share five questions to ask about your bank account to help prevent overdrafting.
Does your bank process credits or debits first?
Credits, also known as deposits, could be from a bank transfer, direct deposit or check deposit. Debits, also known as withdrawals, could be from a bill payment, ATM withdrawal or debit card purchase. Some transactions are processed overnight, which means that an available balance seen in online banking or at an ATM may not be completely accurate or current. National banks often post deposits (credits) before withdrawals (debits), but they are not required to do so. Ask your bank how they normally order transactions.
Is overdraft protection worth it?
If you overdraft your account, your bank is not required to notify you. That’s why it’s important to always keep a close eye on your balances. Before you decide to sign up for overdraft protection, weigh the pros and cons. Also, double check if you are signed up: 52 percent of Americans who overdrafted don’t even remember signing up for overdraft protection!
The Consumer Financial Protection Bureau suggests that you don’t “opt-in” for debit-card based overdraft protection. If you opt out, transactions beyond your balance will be declined. Overdraft protection means that the bank will cover a certain amount up to a preset amount if you overdraw. There is normally an extra fee applied. If you don’t sign up, your debit card transaction will normally be declined.
Does your bank or credit union have low balance alerts?
Instead of signing up for overdraft protection, you could check with your bank or credit union to see if they have low balance alerts. This will let you know if you’re getting close to zero so that you can take action to avoid the consequences.
Is there a cutoff time for deposits to process on that business day?
Check with your bank to see if they have any cutoff times for when the deposit will post to the account. Keep in mind that if you make a deposit after the cutoff time, your transaction may not process until the following business day.
How often do you check your account transactions?
Review your account balance and transactions regularly, and remember that pending transactions may not post immediately. Look at each line item over the past few days to make sure you understand the whole picture. You could also keep tabs on your transactions by using an old-fashioned check register in the back of your checkbook. Do what works best for you to keep track of all debit transactions.
While asking these questions cannot guarantee that you’ll avoid overdrafting, it’s worth taking a few minutes to find out how your account works.
Disclaimer: LendUp is not providing financial, legal or tax advice. If you need or want such advice, please consult a qualified advisor.