Do you have advice for steering clear of overdraft?
December 21, 2021

Dear Frost,

With the world feeling more back to normal, I’ve noticed I’m spending quite a bit more money at restaurants and stores. I haven’t pushed my checking account to a negative balance yet, and I’m hoping to keep it this way. But I’m getting a little nervous. What’s some of your best advice to avoid overdrafting my account? — Afraid of Overdraft

Illustration of a hand passing a debit card.

Dear Overdraft,

I totally understand why you might be concerned about overdrafts! Luckily, some simple, universal advice applies well here: Pay yourself first. That’s the best way to get set up for financial success. What does that mean? Well, it means staying on top of money coming in and money going out. When you’re in the habit of regularly keeping tabs on your bank balances, it makes it easier to save! After taking care of your bills and regular monthly spending, find an amount you can put away in savings every month to cover any spending that might put you in the negative.

Save Without a Second Thought

The benefits of a simple saving habit are huge. Most accounts allow you to set up an automatic transfer of any amount from checking into savings. And then, you can link your savings to be your overdraft protection account. (I explain more about what that means below!) Plus, when you automate it, you tend to forget about it, and you’re doing yourself a huge favor without any work.

Another automation to consider is when your bills get paid. It requires some phone calls up front, but many utility providers or even credit card and student loan companies will let you pick a day to have your bills due. So get out the calendar and spread out those larger bills so your account won’t be so drained at the end of the month!

It’s easy to get lost in the terminology, so take the time to read the details.

Get Friendly with Fine Print

When setting up your accounts to serve the way you live, spend and save, it’s important to get familiar with some key terms. For example: overdraft protection. This means you’ve linked your checking account to another account (often a personal savings account) so that if you spend more than you have in checking, your bank will automatically transfer funds from the linked (savings) account to cover the transaction. Put another way: You’re protecting yourself from an overdraft by linking your spending account to your savings account. Some banks charge a fee (Frost doesn’t) to transfer money to cover overdrafts, but connecting accounts is still a best practice.

Another term you may hear is “opting out of overdraft coverage.” You always have the option to opt out of overdraft services, which will avoid overdraft fees, but it could also lead to returned checks, declined payments or non-sufficient funds fees. For me personally, I’d rather my mortgage payment go through and pay an overdraft fee than have that mortgage payment get declined and then have to deal with how that looks on my credit, with my lender, on and on. But everyone’s spending habits are different, and you need to determine which makes the most sense for you. For example, there is an option to opt out of overdraft just on debit card transactions, which could be a good way to prevent overspending on discretionary items before you get paid again.

It’s easy to get lost in the terminology, so take the time to read the details. For example, does their overdraft program cover debit card transactions as well as other payment types? It’s also important to understand what fees are charged, when they are charged and if there is a maximum fee per day.

Where You Bank Matters

Sure, these days most of us bank online most of the time. But if you find yourself in a bind and don’t know what to do, it’s in those moments that it really matters where you bank. Are you going to be able to drive over or pick up the phone and talk to someone who can help? Or are you going to be stuck with a chat window and an email address?

At Frost, we understand that there’s a story behind every overdraft. No one plans to spend more money than they have. Something has gone wrong, life happened, and we’re here to help. If you’re in a situation where an overdraft looms and you want to talk through your options, give us a call. Don’t be afraid to pick up the phone, even if you don’t bank with Frost. We might be able to get you through this moment and set you up for success going forward, with automated savings transfers, low-balance alerts and more tools to manage your spending now that you’re celebrating being out and about in the world!

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