5 Alternatives to an Expensive Overdraft Fee

The relative APRs for overdraft fees can average as much as 17,000 percent! Here are five options that will cost you less.

Overspend on your debit card, you’ll get hit with an overdraft fee. And while that might seem pretty annoying, it can actually be more much worse than that. With an average overdraft fee of $30 applied to every over-the-limit transaction—no matter how small—research from the Consumer Financial Protection Bureau (CFPB) found that they carry an average APR of 17,000 percent!

While many overdraft fees get incurred without the user realizing it, others might see these fees as an acceptable price to pay when they need to cover an unforeseen expense or surprise bill. Either way, there are better ways to handle your finances, ones that don’t involve APRs in the thousands.

Here are five alternatives to help you avoid expensive overdraft fees.


1. Link a savings account.

Technically, this is a kind of overdraft protection, but it’s one that comes with much more reasonable costs.

Most banking institutions will let you link a savings account to your checking account to serve as the first line of overdraft defense. When you overspend, money is taken from your savings account to cover it with only a small transfer fee on top.

Of course, this plan only works if you have money in the savings account, to begin with, and that means making a plan to start strategically socking your money away. If you don’t have an emergency fund, this savings account would be a great place to keep one—so long as you don’t make overdrawing your account a regular habit, as that will drain your rainy day funds away.

In order to start building your emergency savings, you’re first going to need a budget. If you don’t have one, here’s a handy guide—complete with a free downloadable budget spreadsheet—to get you started. Try following the principle of “paying yourself first” to ensure that saving money doesn’t take a back seat to everything else.

2. Use your credit card.

Many banking institutions will also let you link a related credit card to your checking account as a form of overdraft protection. While a savings account is a much better option than a credit card—as it doesn’t involve borrowing any money at all—a credit card can make a good second line of defense. And it’s still better than an overdraft fee.

If you find your bank account balance dropping dangerously low during those last couple days before payday, you might want to consider using a credit card to make some purchases instead of your debit card. That way, you’ll be sure to avoid overdraft fees altogether. (If you don’t notice when your bank account balance dips close to zero, sign up for account alerts.)

The one danger with using a credit card is that you’ll wrack up excessive debt, so make sure you pay those purchases off as soon as you can. Do so within 30 days and you’ll be able to avoid paying any interest at all! So long as this card is only being used in rare emergencies—and it’s getting paid off ASAP—this shouldn’t prove to be a problem.

3. Ask friends and family for money.

No one likes asking a friend or family member for money, but it’s a better alternative than incurring an overdraft fee. Like many of the options on this list, this is something you won’t want to make a habit of, but it can work pretty nicely as a one-off solution to the problem. Otherwise, you could put some of your close personal relationships in jeopardy.

The key to asking a friend or family member for money—even if it’s for a really small amount—is to make sure that both parties are perfectly clear on the terms of the agreement. If your friend thinks that you’re paying them back next Friday, whereas you planned to pay them back gradually over the next three Fridays, that’s a recipe for disaster.

To make sure that everybody is on the same page, it helps if you have an actual page! In this case, that means a written loan agreement. (That might sound like overkill, but it’s always better to be safe than sorry.) Here’s the good news: You don’t have to create your own! Just print out this free loan agreement template we created, fill in the relevant info, and you’ll be good to go!

4. Consider a personal loan.

If the shortfall you’re facing is on the larger side, you might want to consider taking out a personal loan to cover the expenses. Although this will mean incurring interest—which is something you always want to avoid whenever possible—the APRs that you’ll end up facing could be smaller with the right personal loan than you would encounter with an overdraft fee.

For folks with bad credit, however, their borrowing options will be a little more limited. They’ll have to choose between various bad credit loans and no credit check loans. And while short-term payday loans, title loans, and cash advances might seem like the better option, their quick turnaround and lump sum payments could end up trapping you in a cycle of debt.

Instead, you should consider a bad credit installment loan. These online loans not only let you borrow more money, but they come with smaller, regularly scheduled payments. Some bad credit installment loans—like the ones offered by OppLoans—even report payment information to the credit bureaus. This means that on-time payments could help improve your credit score!

5. Don’t use overdraft protection at all.

The point of overdraft protection is that it prevents your debit card or checks from being declined. But if you find yourself regularly overdrawing your account, then you should probably turn your overdraft protection off. While this might be a little more hazardous if you’re writing a lot of checks—as bouncing a check means incurring NSF fees—debit card users should strongly consider it.

Without overdraft protection, your debit card will simply be declined at the point of sale. While this can be embarrassing, it most likely won’t be the end of the world. In the meantime, you will be forced to start building better financial habits (like budgeting) that will help you spend within your limits and avoid overdrawing your account at all.

Most of the alternatives we have suggested in this article don’t address the root of the problem, which is spending more money than you actually have in your checking account. The sooner you get that under control, the better off you’ll be. To learn more about how you can instill better financial practices, check out these other posts and articles from OppLoans:

Do you have a personal finance question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.