What is the best way to avoid spending more money than you have in your account? Keep an accurate record of all your transactions. Use your transaction register to record every deposit and withdrawal you make whether it is by check, ATM, debit card, or automatic payment (for example, your car payment or gym membership).
Your bank may offer services, such as online and mobile banking or text alerts that will help you monitor what has been paid from your account, account activity and current available balance. But remember — you will always be in the best position to know exactly how much money you have to spend when you keep an accurate and current record of every transaction you have made or may be automatically paid from your account on a future date.
It is always important to know your available balance before you access your money. The available balance is the amount of money that the bank will make available to you for withdrawal or use to authorize your next purchase or payment.
Your available balance reflects the authorized withdrawals that are known to your bank. You should adjust for any checks you have written that have not been paid from your account. In addition, some pending debit card transactions may not be your final purchase amount (such as when you add a tip to a restaurant bill) so you need to adjust for this amount. As a result, the bank may say “yes” to one of your transactions and then when all of your transactions are paid from your account, you may have overspent on your account. Your transaction register will always be the most complete record of the amount that is available for your next withdrawal or purchase.
When you spend more than you have in your checking account, there are several possible outcomes. Your bank may:
- Decline your next ATM or debit card transaction when you are attempting to withdraw money or pay for a purchase and you do not have enough money in your account. There is no bank fee associated with a declined ATM or debit card transaction.
- Transfer money from a savings or credit account that you link to your checking account for overdraft protection. A transfer fee may apply. You should check with your bank about applicable fees.
- Pay your transactions into overdraft. You will need to repay the bank and an overdraft fee may apply.
- Return your transaction unpaid due to insufficient funds. Your bank may charge you a returned transaction fee. If this returned transaction is for payment of a bill (e.g., credit card, car payment or insurance premium) you may be assessed other late bill payment fees and you could adversely impact your credit payment history.
The bank may pay your transaction into overdraft as a service to you; but this is a discretionary service (the bank does not promise to pay your transaction). An overdraft fee may be charged on each transaction paid into overdraft — so, this is not the best way to manage your account.
The best option is to keep track of your transactions to avoid overspending. Another good choice is to ask if your bank offers overdraft protection. When you link another account (such as a savings or credit account) to your checking account, the bank will transfer money to your checking account when it is needed. Usually this is a single transfer fee that may cover multiple transactions (not like overdraft or returned transaction fees that may be charged on each transaction). Remember that this service can help prevent overdrafts or returned transactions only if you have money or available credit in the linked account.