An overdraft is a negative balance in your bank account and can occur for any number of reasons. You might accidentally spend more than you have available in your checking account, for example, or forget to transfer funds before an automated payment gets debited from your checking account. Whatever the cause, an overdraft comes with a number of negative consequences, especially if you don’t pay what you owe right away.
Read on to learn exactly what happens when you overdraft a bank account, plus tips on how to repair the damage and avoid overdrafts in the future.
What Is an Overdraft?
An overdraft happens when you spend more than you have available in your bank account and the bank pays for the transaction anyway. Think of it as a form of credit, where the bank is lending you money to cover the transaction and you’ll need to pay them back. Having this feature can be convenient, since it allows you to cover payments or withdrawals, like subscription services or a utility bill, even if you don’t have enough funds in your account to cover them.
However, many financial institutions charge their customers hefty fees for this convenience. Depending on the bank, overdraft fees can run upwards of $35. You are expected to pay the fee, plus the amount that was overdrawn.
What Happens if You Overdraft Your Bank Account and Don’t Pay It Back?
If you overdraft your bank account and don’t pay what you owe plus the overdraft fee, you could face several unpleasant consequences, such as owing additional fees, your account being closed, and having the debt go to collections. Here’s a closer look at the potential fallout.
You Owe the Bank
The amount that was overdrawn, plus any fees, is what you owe the bank. You can repay your debt by transferring or depositing the owed amount into your account. Depending on the financial institution, you may have a certain amount of time to pay the bank back, such as within 30 days of the overdraft.
Pay the Overdraft Fee
Some banks charge a fee each time you overdraft, while others charge a fee for each day you overdraft. This is an important distinction: If your bank charges a fee for each overdraft and you inadvertently overdraft your account multiple times on the same day (which can happen if you have a low balance to start with), you’ll face multiple overdraft fees. For example, if your bank charges $35 per overdraft and you have three transactions in one day, you’ll owe the bank $105 in fees.
Your Account Could Be Closed
If you continue to overdraft your bank account and don’t pay it back, the bank may close your bank account to prevent any more withdrawals. You will still owe the amount you’ve overdrawn, plus any fees you’ve incurred. In some cases, the bank will send your debt to a collection agency.
The Bank Can Sue You
Anyone you owe a debt to can take you to court to try to collect it. The bank can sue you or, if it turns the matter over to a collection agency, the agency can sue. If the court grants a judgment against you, the bank or collection agency can garnish your wages or to place liens against your property in an effort to collect the debt.
Difficulty Opening Another Account
Some financial institutions will report closing your bank account and your unpaid overdraft debt to ChexSystems, the reporting agency for banking. ChexSystems maintains a report of your banking activity, which banks and credit unions can use to determine whether to approve your application for a new checking or savings account. Having an overdrawn and closed account could impact your ability to open a new account, even if it’s at a different bank or credit union.
How to Avoid Overdrafts
Overdrafts are an expensive nuisance. Here are some strategies that can help you avoid overdrawing your account in the first place.
Monitor Your Spending
Keeping an eye on how much you have in your checking account each day and knowing when bills are due can help you avoid spending more than you have available.
Set Up Low Balance Alerts
Many financial institutions allow you to sign up for customized banking alerts, either online or via your banking app. It’s a good idea to set up an alert for whenever your balance dips below a certain threshold. That way, you can top up your account to prevent the account from being overdrawn.
Check Your Account Statement Regularly
Looking at your account statement each month can help you spot patterns, like when your account balance tends to dip and, if you have an overdraft, when and why it happened. This can help you better monitor your account and adjust your spending.
Link Your Checking Account to Another Account or Credit Line
Many banks offer overdraft protection, which allows you to link your checking account to a savings account within the same financial institution or, if you qualify, a credit line. That way, if you don’t have enough funds in your checking account to cover a transaction, the bank will automatically transfer money from your savings to cover the transaction. In the case of a credit line, the bank will borrow what it needs from your credit line.
Overdraft protection avoids overdraft fees, but may come with interest and other fees.
The Takeaway
Overdrafting your bank account and not paying what you owe could result in some negative consequences, like racking up even more fees, having your account closed, the debt going to collections, and difficulty opening a new bank account.
Even if you do all you can to prevent an overdraft, the reality is that it can happen on occasion. If you’re worried about the occasional overdraft, it may be worth looking for a bank that doesn’t charge overdraft fees.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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Here’s How to Never Pay Full Price for Anything Again
Want to know how to never pay full price for anything? There are plenty of tips and tricks that can help you get a better deal on everything from a car to a big carton of cereal.
Saving money does more than put money back in your pocket. It can truly help you feel in control of your finances, which can, in turn, help motivate you to continue building good financial habits.
If you’re interested in becoming more conscious with how you’re spending money, be sure to take a look at these 15 tips. Even the savviest shoppers are always learning new ways to save money for optimizing spending and saving habits.
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Before delving into strategies for saving money off of retail, consider how much most items are marked up for sale. While there is no set or ideal number, many businesses charge 50% more than the actual cost of the item. So if it cost a company $50 to make a sweater, they would sell it for 50% more than that, or $75.
This means that, while not optimal for their financial goals, they could sell the garment for less than $75 and still be recouping their costs, plus a profit.
Some categories of products are known for having even higher markups.
Consider these:
- Mattresses, up 900%
- Designer jeans, up to 500%
- Furniture, up to 400%
- Coffee to go, up to 300%
- Diamonds, up to 100%
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While there isn’t a rule about where you can and can’t negotiate, you are more likely to be able to get a better price at some locations than others. For instance, bargaining is more appropriate at:
- Flea markets
- Car dealerships
- Small shops
It’s less likely to be effective at:
- Luxury retailers
- Chain stores
- Malls
That said, some top-notch negotiators say they have scored discounts almost anywhere. Read on for tips to help you do the same.
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Smart shoppers often get the latest and greatest – without having to pay full price for it. These genuinely helpful tips can help you save money on anything and everything so you know how to never pay full price for anything ever again.
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There are a whole host of browser extensions and apps that can save you money with minimal effort on your part. You can see cash back options, rebates, price drops, and places where you can find an item for a lower price on another website. Some examples of boosting your money saving skills this way include:
- The Honey Extension will automatically look for and apply digital coupons and promo codes when you’re shopping online.
- Rakuten is a rebate extension that offers cash back, coupons, and deals at more than 3,500 stores.
- CamelCamelCamel is an Amazon price tracker that alerts you when the price drops on an item you’ve been looking to buy.
- Booklovers alert: The Library Extension works when you’re searching for a book to buy, such as on Amazon. It’ll allow you to check the online catalog of your local library so you can save some money by borrowing a book from the library instead of buying it online.
Michael Krinke
You’ll find rebates from many manufacturers and retailers. Order new contact lens or an electric toothbrush, and you may get $25 or $50 back. Don’t let that piece of paper (which you may have to mail back in to get your reward) wind up in the trash.
Another popular source: Your power company likely offers some type of rebate for energy-efficient appliances, air conditioners, water heaters, smart thermostats, light fixtures, and more. For example, you may be able to find a $50 rebate for an energy efficient refrigerator. Pair that with a $50 credit for recycling your old one, and you have $100 off a new fridge. Just be sure to check with your power company to make sure your appliance meets the requirements and you send in the rebate on time.
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Buying used consumer items can net you substantial savings — upwards of 90% off — and sometimes you can find these things for free. Essentials for babies and kids, clothing, and home decor can be found for a fraction of their original retail price. They’re often in great shape and there’s such an abundance of used items for sale that you can be picky with what used items you buy.
Where to look? Try the following:
- Freecycle sites
- Local thrift shops and flea markets
- Nextdoor and Facebook Marketplace
Buying discounted goods this way can be part of your financial freedom plan and help you find more money in your monthly budget.
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You’ll score major discounts if you can buy things you need in the offseason. When a store is trying to make room for new inventory, you’ll see several price drops. Buying snow boots in March or swimsuits in September could save you 50% or more.
Club Wyndham
A great way to never pay full price on travel is to redeem credit card points for airfare, hotel stays, transportation, and other travel expenses. Some credit cards have partners (such as airlines and hotel chains) where you can transfer points and book directly with the travel provider. Other credit cards offer a simpler redemption based on the cash back rewards based on the value of what you book.
The benefit for redeeming points depends on which credit card you have, but many offer a tremendous value for the frugal traveler who never pays full price.
You may also be able to redeem cash back for gift cards. You may be surprised to see a 20% bonus for cash back you redeem for a gift card. To do a bit of the math, that means $40 in cash back becomes a $50 gift card for your favorite retailer.
Many credit cards also offer consumers the ability to use cash back or points to pay for purchases. You may have a card that offers you the ability to erase charges with the cash back you’ve earned after you receive your statement. You may see an option to pay for a purchase at checkout with your cash back or points (usually if you’re using a third-party site like PayPal). These can be a good way to avoid paying retail.
Recommended: 25 Ways to Cut Costs on a Road Trip
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Not every shopper needs to be an extreme couponer to help them never pay full price. If you find something you want to buy online, for example, getting a discount may be as easy as searching online for a promo code.
Promo codes are essentially just digital coupons for the site you want to buy something from. They can help you avoid overspending money by reducing the cost of buying the product or service you need.
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The pantry principle is when a shopper stockpiles goods bought at the lowest price. If a can of corn normally costs $1 and goes on sale for 50 cents, you buy in bulk to take advantage of that reduced price.
You’ve cut your cost for corn in half for as long as you have the cans in your pantry.
The same idea can work with other non-perishable essentials. If you can buy, say, your favorite yoga pants or cleaning products on sale and in bulk, you’ll reduce your spending.
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Warehouse clubs and outlet stores offer different ways to save money. Costco and Sam’s Club, for instance, focus on selling products in bulk, which can result in a decent amount of savings. Keep in mind, however, that not all products sold at a warehouse are cheaper than what you can find at other retailers, so just be sure to check your price, especially pre unit, whether that’s by the ounce or the liter. Also take advantage of discounts your membership may offer on health services, entertainment, tires and more.
Likewise, outlets can offer savings by selling overstock items from other retailers. You might find a pair of boots you’ve been coveting or a new armchair at a deep discount.
Recommended: 23 Tips on Saving Money Daily
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Want a free dessert? $10 off your meal? A surprise gift? Take advantage of special perks on your big day. Birthday deals abound, particularly at restaurants and certain retailers, like Sephora, Macy’s, and Petco, among others.
To take advantage of a great birthday deal, you may need to sign up online in advance.
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If you’re about to make a significant purchase, do your research online first. You might find, for example, that one retailer is offering no delivery fees on refrigerators, but that they charge $75 more for the model you want than a competitor. You could see if they will match the price of the competitor in order to snag the best deal possible.
Also, some retailers offer a price drop refund on items you previously purchased. This works by taking your receipt back to the retailer if the item you just bought went on sale shortly after your purchase (usually within two weeks, but the time can vary by each retailer’s policy).
Recommended: Compulsive or Impulsive Shopping: How to Combat It
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Sometimes, scoring a deal is as easy as asking for it. You can politely ask, “Is there any discount you can offer me for this?” or “Would it be possible to ask for a discount on this?” The best places to ask for a discount are the ones where there is some discretion at giving discounts, such as a seller on Facebook Marketplace, a retail manager, or even a hotel clerk.
Nevertheless, even a big-box salesperson can help you identify any current or upcoming discounts if you take a moment to inquire.
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Eventually, most of the items you’re shopping for will go on sale, so it’s best to never pay full price for retailers that have frequent sales. Retailers will use any excuse to hold a sale. (Ever see an ad for a furniture store selling mattresses on Presidents Day?) The Gap, for instance, is known for having monthly sales with great discounts. After all, retailers know you’re more likely to spend money if you feel like you got a good deal.
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This one is a little sneaky. Abandoning an online cart occurs when you add something to your online shopping cart but don’t actually complete your purchase. Nearly 70% of carts are abandoned by consumers. To help increase sales of abandoned shopping carts, retailers have some smart ways to get consumers to come back and finalize the purchase. Sometimes, the retailer will email you a coupon or entice you with another offer to get you to finish your purchase.
Irina Tiumentseva / istockphoto
It’s common for websites to show their newest (and most expensive) products first, but if you sort your search to have the lowest-priced items shown first, you’ll likely find the things you need for less.
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Many retailers offer a discount when you subscribe to their email list or newsletter for the first time. Retailers know that nearly 60% of their sales come from offering coupons or discounts. This means the discount they offer has to be good enough for a consumer to subscribe, so offering up your email could save you a bit of money.
These offers might be for 10% or more off, free shipping, or other deal sweeteners. And you can opt out of future emails whenever you like.
Additionally, some retailers will offer these deals or increased savings if you allow them to text you with their latest news and sales.
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Paying less for items can mean you’re a smart shopper; it just plain feels good to know you’re saving money off of retail prices. If you have a few tricks up your sleeve, you’ll know how to never pay full price for anything ever again. Whether it means using a browser extension when shopping online, taking advantage of cash back offers, or tapping your negotiation skills, there are many ways to make sure you get the best possible price tag whenever you buy.
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- When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a no fee bank account that doesn’t charge you for overdrafting.
- When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided.
- Signing up for your paycheck to be directly deposited in your bank account is a great way to help you pay your bills on time. After all, if your check is being deposited like clockwork, you can schedule bill payments ahead of time.
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Is paying retail bad?
If you feel the price is fair, there’s nothing wrong with paying full retail price. In fact, studies have shown the more focused a person is on scoring a deal, the more likely they are to spend more money. If you’re also more conscious of what you buy, that’s more important than saving a few bucks on something that won’t last or doesn’t hold value.
Why are wholesale and outlet stores cheaper?
While not every item is going to be cheaper at wholesale and outlet stores, in general, you will find better prices shopping at stores that offer an alternative to full retail price. Wholesale stores can offer better prices by focusing on fewer products and selling inventory in bulk. Outlet stores often have better prices because they sell overstock items.
Should I pay retail if an item is limited?
The adage, “spend according to your values” can help you decide when to pay retail price. If you’re purposeful with spending your money, paying retail price on a limited item is a decision that may make sense for you.
Learn More:
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
SoFi members with direct deposit can earn up to 2.50% annual percentage yield (APY) on all account balances in their Checking and Savings accounts (including Vaults). There is no minimum direct deposit amount required to qualify for 2.50% APY. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.50% APY is current as of 09/30/2022. Additional information can be found at SoFi.
SoFi Checking and Savings is offered through SoFi Bank, N.A. 2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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