Even if you regularly check your bank balances online, things happen. You could accidentally let your account go negative, and that can be costly and stressful. A negative bank account balance is obviously not a positive thing. One minute, your account balance is $200. The next minute, it’s minus $200. Ouch!
Rather than panic, stay positive. It’s important to act quickly to minimize any potential financial damage. Even better: You can do a lot to prevent a negative balance in the first place and avoid bank charges.
Are you fed up with dealing with negative bank balances? It might be irritating to continually struggle to keep your money in order. You may believe you’ve tried everything, yet there may be some things you’re missing.
In this post, we’ll look at the consequences, and how to avoid a negative bank account, and also we’ll look at 11 things you could be overlooking that could help you prevent a negative bank account.
- 1 What Is A Negative Bank Account?
- 2 Why Is My Bank Account Negative?
- 3 What Effects Does a Negative Bank Account Have?
- 4 What Should I Do If My Account Is Overdrawn?
- 5 Can I use my debit card if my account is in the red?
- 6 How to Avoid Having a Negative Bank Account
- 7 Important Things You’re Forgetting to Do
- 8 Conclusion
- 9 FAQs
What Is A Negative Bank Account?
A negative bank account means you’ve got a negative balance. In other words, the balance in your bank account has dropped below $0. A negative balance is also called an overdraft.
Also Read: What is a Fake Bank Account?
Why Is My Bank Account Negative?
A negative balance or overdraft occurs when you spend more money than you have available by:
- Making a payment.
- Making an electronic payment, such as a bill payment.
- Making a purchase with your debit card.
- Using an ATM to withdraw money.
You may not be closely monitoring your balance and wind up spending more than you should. Alternatively, an automatic bill payment is made before your salary is received.
Several more factors can contribute to a negative balance in your bank account. Here are four such examples:
- You write a cheque for $750 to cover your rent. When your landlord deposits the cheque, you have a negative bank balance because the cheque amount ($750) is greater than the quantity of money in your account.
- You set up an automated payment for your cell phone bill on a specific date. You deposit a $100 cheque into your account to help cover the $75 charge. The funds from that cheque, however, are not available until the funds for automated bill payment have been taken from your account. If the bill payment exceeds the quantity of money in your account, your balance may become negative.
- You use your debit card to settle a $50 bill at a restaurant. But you don’t have enough money in your account to cover it right now. Depending on how your bank handles the transaction, this could result in a negative balance on your account.
- You go to an ATM to withdraw $100 from your bank account as you get ready for a night out with your buddies. However, there is just $80 on hand. Your bank may permit you to withdraw the $100 in some situations, resulting in a temporary negative balance at the very least.
What Effects Does a Negative Bank Account Have?
A negative bank balance can have expensive repercussions and potentially lower your credit rating.
According to the American Bankers Association, if you spend more money than you really have in your account, your bank may or may not pay the transaction.
The bank may cover the transaction and give you an overdraft fee in the best-case situation. Overdraft fees are typically $35. The bank is effectively charging you a fee for a temporary “loan” to cover the transaction. Your bank may impose a daily limit on the amount of overdraft fees it charges.
A bank may also protect your account by transferring funds from a connected account, such as a savings account, to your overdrawn checking account. They may also give an overdraft protection line of credit.
Your bank, on the other hand, has the option of declining a transaction without paying it and charging you a non-sufficient funds (NSF) fee. A bank will usually levy an NSF fee. A bank will usually charge an NSF fee that is the same as an overdraft fee. A merchant (such as a grocery store) may charge a fee for a denied debit card purchase, or your landlord may charge a fee for a returned check, in addition to an NSF fee.
Statistics can be shocking. According to Financial Health Network research, American consumers paid $12.4 billion in overdraft fees in 2020. That works out to about $48 for every adult in the United States.
What Should I Do If My Account Is Overdrawn?
You can take efforts to mitigate financial loss if you overdraw your bank account. Here are five examples.
Send money right away.
If you do not have another account automatically linked to the overdrawn account, try to transfer money from another account into the overdrawn account as quickly as possible. This may prevent more overdrafts, increased overdrafts, or NSF fines. Check that the money transmitted covers both an overdraft transaction (such as a bill payment) and the overdraft or NSF fees.
Immediately deposit funds
If you can not immediately transfer funds from one account to another, find a way to put funds into the overdrawn account. Perhaps you can scrape together enough money from your spare change or borrow money from a friend.
If you notice an impending overdraft early enough, the money you deposit may let you to avoid overdraft or NSF costs.
Pay the fines.
Allowing overdraft or NSF fees to accumulate is one of the worst things you can do. If you fail to pay these fees, the bank may cancel your account, sue you, or report your failure to pay to a business that monitors checking and savings account activities. Unpaid fees may become part of your account history and may prevent you from creating future checking or savings accounts.
Ask the bank to erase the fines
If you have been a good client in the past, your bank may forgive an overdraft fee. However, if you continue to incur these penalties, the bank may become less accommodating.
Contact the person who received the bounced cheque or overdraft transaction.
If you wrote a bad cheque or attempted a transaction that your bank declined, contact the recipient as soon as possible. In this manner, you can make amends with a landlord, a restaurant, or whoever intended to receive your cash. They might even be willing to waive a fee they were planning to charge.
Can I use my debit card if my account is in the red?
If you have overdraft protection, you can use your debit card even if your account is negative. Overdraft protection may be provided automatically by your bank if an ATM withdrawal or debit card activity reduces your balance below $0. If you have overdraft protection, it may cover a withdrawal or transaction. In any case, you will almost certainly be charged a price.
How to Avoid Having a Negative Bank Account
A negative bank balance might destabilize your finances. However, there are some things you can do to keep your equilibrium from falling below zero.
Keep track of due dates.
It’s recommended to pay bills before the due dates, but only after your regular paydays or other money is transferred into your account on a regular basis. Some bill payment recipients, such as credit card companies, will allow you to change due dates to correspond with when money is deposited into your bank account.
Connect your accounts
Connect your primary bank account to a savings or other account. With this method, you can transfer funds when you see your account is in the negative or is soon to enter it.
Enroll in overdraft protection.
You may be able to link your primary bank account to another account or even a credit card so that the bank automatically covers negative balance transactions. Keep in mind, though, that your bank will almost certainly charge you for overdraft protection coverage. This fee, however, is likely to be smaller than a regular overdraft or NSF fee.
Make a direct deposit.
Rather than depositing a paper cheque provided by your work, have your employer direct deposit your paycheck into your account. This will allow you to access your funds more quickly.
Keep an eye on your account.
Always keep an eye on your account balance so you know how much money you have on hand. This can be done through your bank’s website or mobile app.
Register for notifications
If you sign up for this service, certain banks will send you text or email warnings when your bank balance falls below a specific threshold (say, $25).
Create a budget.
Creating a budget might assist you in staying on top of your monthly income and expenses. This may assist you in avoiding overspending and overdraft problems.
Create an emergency fund.
Experts generally recommend that an emergency fund have enough money to cover three to six months of living expenses. When your bank account is approaching a negative balance, you can draw on your emergency fund.
Important Things You’re Forgetting to Do
When you are having financial problems, it might be difficult to keep your bank account balance positive. There are many things you can do to maintain your financial stability, but there may be some that you are missing. You might be able to find areas where you can improve and prevent having a negative bank account by taking a deeper look at your spending and saving behaviors.
1. Monitor Your Expenses
Tracking your expenditure is one of the most crucial things you can do to prevent a negative bank account. This entails keeping a record of all your outlays, large and small. You can then make modifications as necessary after you have a better knowledge of where your money is going.
2. Establish a Budget
Another practical strategy to keep your bank account from going negative is to make a budget. A budget enables you to allocate your funds in a manner consistent with your financial objectives. Knowing exactly how much you can afford to spend in each category can help you remain within your budget and prevent overpaying.
3. Set financial objectives
You can prevent a negative balance in your bank account by setting financial goals. You may stay motivated to save and make sensible financial decisions by having clear goals in mind. Having a specific objective will help you keep focused, whether you are trying to pay off debt or save for a down payment on a home.
4. Find ways to reduce spending
Another efficient method of preventing a negative bank account is by cutting expenses. Look for ways to cut costs, such as cutting back on eating out or terminating pointless subscriptions. You can then have more money available to put toward your financial objectives.
5. Decrease late payments
A negative bank account might also result from late payments. Late payments can result in expensive fees and harm to your credit score, whether it is a credit card payment that is made after the due date or a missed utility bill. Keep track of your payments and, if necessary, issue reminders.
6. Overdraft Defense
Many banks provide overdraft protection, which helps prevent a negative balance in your account. This function helps you avoid fines and negative balances by automatically transferring money from another account to settle any overdrafts.
7. You can earn more money
Another approach to keep your bank account from going negative is to increase your income. Find ways to increase your income, such as by taking on a side job or doing freelance work. You can enhance your financial status and cash flow by doing this.
Also Read: Know NEFT Charges Before Send Money in 2023
8. Benefit from Automatic Payments
A negative bank account can also be avoided by using automatic payments. You can make sure that your bills are paid on time and steer clear of late fees by setting up automated payments for your bills and other obligations.
9. Use Cash
Another efficient method for preventing a negative bank account is to pay with cash. When you pay with cash, you can better keep track of your spending and are less likely to go over budget. For discretionary purchases like stationary, groceries, vegetables, etc., think about paying with cash.
10. Follow up on your accounts
To prevent a negative bank account, continuous account monitoring is essential. Make careful to regularly check your account balances and monitor your transactions for fraud or other mistakes. By doing this, you can identify any problems as soon as they arise and stop them from getting worse.
11. Seek Financial Assistance
It could be important to seek financial assistance if you are still having trouble maintaining a positive bank balance. Consider speaking with a credit counselor or financial expert who can provide advice and support in managing your finances.
Financial stability can only be attained by keeping your bank account balance positive. You can prevent a negative bank account and achieve financial success by keeping track of your spending, making a budget, setting financial goals, identifying ways to cut costs, avoiding late payments, using overdraft protection, increasing your income, utilizing automatic payments, using cash, monitoring your accounts, and getting help if needed.
1. What is a negative balance in a bank account?
When you withdraw more money from your account than is available, you have a negative bank account balance.
2. How can I stay away from overdraft fees?
By monitoring your account balance, putting up overdraft protection, and refraining from pointless activities, you can prevent overdraft costs.
3. Are overdraft fees refundable?
Overdraft charges may occasionally be waived. To find out if your bank provides fee waivers or other ways to help you avoid overdraft costs, get in touch with them.
4. How can my credit score increase?
Paying your bills on time, lowering your debt, and preserving a low credit utilization ratio are all necessary for raising your credit score. Furthermore, constantly reviewing your credit report and correcting any inaccuracies might help you raise your score.
5. What should I do if I have a negative bank account balance?
If you have a negative balance in your bank account, you should take action to reverse it as soon as you can. This can entail raising income, cutting costs, or looking for financial assistance.