4 Crazy Overdraft Prevention Techniques that Actually Work — Change Labs

In such a divided world, it’s reassuring to know most of us have one nagging pet-peeve in common. The mutual enemy we speak of is, of course, overdraft charges. No matter how rarely, or by how little, you overspend compared to your checking balance — your bank will slap you with an exorbitant overdraft fee sooner than you can cry “24 billion dollars”, which, incidentally, is approximately how much banks rake annually in overdraft fees alone. Funny how that worked out.

Banks argue they are well-meaning in doling out this form of punishment — meant to teach you a stinging lesson in staying within your financial means. However, overdraft fees are also one of the more effective ways banks have of roping you into financing things you can’t afford, and paying interest for years. To many, the idea of living sorta-kinda-almost within their means, and occasionally paying a one-time overdraft fee, seems more appealing than loosening the purse strings, but paying monthly and yearly interest to do so.

When faced with setting financial goals, we recommend you look at your income soberly, and allocate money to the things you need and want according to your own set of priorities. Under no circumstances should you allow your checking account to slip below zero — you’re better than that. We realize that’s easier said than done, so here are four rather unorthodox ways to keep yourself in the black:

Check yourself before you wreck yourself (too perfect):

If the most basic thing you can do to avoid overdraft fees is stay on top of your account, we say — don’t settle for basic. Take it a step further and check your account online every single day. Are we crazy? No, not really — keeping your eye on the ball takes just a few minutes, and it will ensure you have a good understanding of your financial standing on any given day. Luckily, our service does the work for you and updates you on the balance of your accounts semi-daily via text. Having this information in the back of your mind will impact the decisions you make — from buying lunch to taking public transportation instead of a taxi — and help you keep a more balanced book. After all, it’s a checking account — so check it.

Lie to yourself (not in the way you’re used to):

Any sound banker or parent will advise you to keep a ‘cushion’ in your account, say $500, which you should never spend. This money should remain untouched, ensuring that in a true emergency, you won’t be zeroed out and still have some money available. Taking this logic, we propose that you lie to yourself about something other than your cooking skills for a chance — we’re talking about your account balance.

You should regard that $500 baseline as your new zero — and even set up an alert with your bank to text you when you’ve reached it. From this point on, every purchase onward will need to be carefully weighed since it will lead to incurring fees. We encourage you to charge yourself fees, too — and for every day you slip under it, pay your savings $10. This way, you’ll be contributing to your savings, but also mimicking how hard it will be now to return to your adjusted baseline. Continue doing this, until you transfer or deposit money to the account and get back above the line.

Disable bank overdraft coverage:

This may sound crazy, but if you haven’t noticed, that’s what we’re going for here. Yes, we propose you opt out of letting the bank cover your overdraft — this means that when using your debit card to purchase something beyond your current means, the transaction will be declined. This simple action accomplishes two things: first, it prevents you from buying the item that sends you over the cliff. Second, it alerts you to impending overdraft, hopefully causing you to be a lot more careful.

Replace overdraft fees with (lower) debt interest:

Hear us out on this one, because at face value it might not make sense, but we’ve crunched the numbers and it’s the real deal. Soon, Change will begin offering POP — a Predictive Overdraft Protection program, where we’ll warn you several days in advance of your foreseen overdraft. In addition, users who are interested will be able to take out a short term loan to cover the anticipated overdraft sum, then repay it at an interest that totals 80% less than the overdraft fee sum. Sure, your debt will still be there, but your credit standing will remain intact and you’ll stand to lose less money to processing and fees.

Some of our approaches may seem out-there, but there’s a reason we included them: they work. Others may tell you to make a greater effort to rein in your spending, not let weeks go by without making a deposit, or link another account to trigger a transfer when you’re overdrawn. While these pieces of advice are sound and well meaning, they are usually not effective in curbing behavior and ending overdraft fees once and for all. The only way that’ll happen is if you — yes, you — make it happen.

Originally published at gochange.co on November 20, 2016.

Change develops an Invisible Service that links to bank and credit card accounts, analyzes money transactions and discovers bad financial behavior (symptoms). It then matches those symptoms with behavioral treatments that are executed through smart sms messages (nudges).

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