What happens when your bank account becomes negative and what steps do you need to take?
If you find yourself in a tight financial situation, you can spend more money than you have and deplete the balance in your checking account. This may have happened by unintentionally due to unlucky timing, such as when a credit card bill or other cost drafts from your account before your salary arrives. Alternately, it can be a warning sign for a more serious monetary problem that you need to address.
This is what you need to know if you find yourself with a dangerously low checking account balance.
Overdraft vs. Non-sufficient Funds
The overdraft agreement you have with your bank is the first crucial detail to comprehend in this scenario. When a transaction against your account lowers the amount below zero, an overdraft occurs. This may be the result of a check you wrote, a debit card charge, an automated payment that went through, or an ATM withdrawal attempt, among other things. It’s important to note that banks may handle certain transactions differently. Checks and ACH transactions fall under a separate set of regulations than ATM and one-time debit card transactions.
There are three possible consequences when a charge is made to your account that can result in a negative balance.
Initially, your bank could pay the amount and impose an overdraft fee on your behalf. When you have “overdraft coverage,” this occurs. For transactions made with an ATM or debit card, you must choose to have your overdraft protected, but for some other transactions, your bank may do it automatically. When the account is negative, some banks will continue to charge you for any subsequent transactions you make. If you have to pay these costs more than once, they may mount up rapidly and are sometimes rather high.
Second, you may utilize funds from another account you own to pay the fee. If you have chosen to use “overdraft protection,” this will take place. If that’s the case, you’ll have a backup account connected to your checking account. Money from the other account is utilised (transferred) to make up the difference when the primary account approaches zero. Often, a nominal fee may be charged for the transfer.
Your connected account should ideally be a savings or additional checking account. A credit card is often not a good choice for a backup account because it will probably be treated as a cash advance.
Finally, your bank will reject the transaction if you do not have overdraft protection or coverage and it decides not to pay the charge. Nonsufficient Funds (NSF) or “insufficient funds” is the cause for the charge decline. In most situations, you will be responsible for a “NSF fee”; frequently, this price is equal to the amount the bank levies as an overdraft fee.
Steps to Take
Here are some actions to think about doing if you have inadequate cash or have overdrawn your account.
Convey funds
You could make a transfer if you have enough money to take care of the cost or just to add some buffer to your account. Several overdrafts in a short period of time can be avoided with a swift transfer. You may also be able to retry a charge from a merchant that was declined in the past owing to inadequate funds.
Request fee waivers
Contact your bank and ask them to waive any overdraft or NSF fees that have been assessed. It never hurts to inquire, and if you’ve never experienced this issue before, the bank could be open to waiving the cost as an occasional favor.
Remit Your Fees
Instead, make sure you pay the charge if you are unable to avoid it. A lot of unpleasant outcomes might result from not paying an overdraft charge. Your account might be closed by the bank, they could file a lawsuit or take other legal action against you, and they could even disclose your nonpayment, which can make it challenging to create checking accounts in the future. Keep in mind that, usually, your bank will give you some time to resolve the overdraft before closing your account. But make an effort to pay the charge as soon as you can.
Paying others will help you avoid legal issues.
It’s a concern if a merchant or other third party attempted to charge your account using an ACH or a check you made but wasn’t paid. Under the aforementioned “NSF” situation, this would take place. In that instance, you must resolve the dispute with the third party in addition to the bank in order to pay the NSF cost. You owe them money, and failing to pay them might have negative repercussions. Usually, it’s ideal to find a speedy and amicable solution to this. Simply get in touch with the business, apologize for the error, and send the required money.
How to stop this from happening again
You may utilize a few straightforward tactics and routines to maintain a positive balance in your checking account going ahead. To name a few:
Register to get SMS or email notifications when your balance is getting low.
Regularly check your bank account, and every month go through your statements.
Compare the dates when automated withdrawals occur to the dates that you get paid. If required, change the dates for automated withdrawal.
Check your expenditure categories to make sure they are not routinely going over your budget.
Establish a reserve money.
Examine whether you need overdraft protection and coverage. If they do, make sure your backup account has enough room for error.
Going forward
Even though it’s not ideal, having a negative balance in your bank account is not the end of the world. If this occurs to you, make sure to address it as soon as you can and then create a strategy to prevent it from happening again.
