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Your Finance: Avoid overdraft fees

Consumers paid an estimated $32 billion in overdraft fees on their debit accounts in 2013. But did you know that most of that revenue comes from customers who give the bank explicit permission to charge them?

An overdraft or insufficient fund charge occurs when you make a payment using a check or debit card and your checking account doesn't have the money to cover it. The bank lends you the money and charges a one-time fee that averages around $34.

Since 2010, banks have been required to seek explicit consent from consumers to charge a fee when they overdraw while making a one-time purchase at the register, or when taking out money at the ATM that they don't have. The Consumer Financial Protection Bureau has found that accounts that "opt in" to overdraft protection have seven times as many overdrafts resulting in fees as accounts that opt out. Doesn't sound very protective!

So if you want to avoid overdraft fees, the first step is to opt out of so-called "overdraft protection." Simply call your bank and tell them you no longer want the service. If your card is declined at a restaurant or store because of insufficient funds, it may be embarrassing, but it won't cost you money.

However, if an overdraft happens because of a recurring payment or a check you write, then the bank doesn't need permission to charge this fee. Avoiding this kind of bind involves a little bit of foresight and planning. Here are some strategies.

Keep a small cushion in your account. The CFPB found that the median amount of a transaction that leads to an overdraft fee for all types of debits is no more than $50, or $24 for a debit card transaction. So keeping just $100 extra in your account, month to month, can help avoid these fees.

Limit recurring monthly charges and preauthorized payments. I am a fan of automatic bill pay because it takes the guesswork out of bills. However, you should take a look at your statement and make sure it isn't cluttered with "ghost charges" like old online subscriptions.

Conversely, make sure you're signed up for direct deposit on your paycheck so it gets into your account as quickly as possible.

If you have a joint account, it's easy to get into trouble. Make sure both of you check the balance often.

Younger consumers average overdrafts at a much higher frequency, so if you are in your 20s, consider signing up for regular reminders of your bank balance. You can get them directly on your phone or email from most banks ("mobile alerts").

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