To receive a lower overdraft interest rate, customers should explain why they deserve it. Alternatively, linking a credit card or a separate bank account can serve as overdraft protection. Loyalty does not guarantee a lower rate, so customers should negotiate or consider switching banks. Opening a savings account can also help avoid overdraft fees.
To receive the lowest overdraft interest rate from financial institutions, consumers must be willing to sit down with their account representative and be able to explain why a reduced rate should apply. There are a number of reasons to request a reduced interest rate, and recent financial difficulties, high credit scores, or transferring to a new bank are just a few. An alternative method would be to link a credit card to serve as overdraft protection, because while the interest rate may be comparable, there is typically a grace period associated with credit cards. A final method would be to link a separate bank account to serve as a form of overdraft, perhaps a savings or money market portfolio.
When dealing with financial institutions, it’s relatively easy to think that consumer loyalty equates to the lowest possible overdraft interest rate. There is possibly no less true statement within the banking world, and unless a fee reduction is requested, the bank would never consider doing so. If a customer service representative states that the account is not available for a lower overdraft rate, often a good strategy would be to mention the change to other financial institutions. Banks will often work much harder to secure a new customer’s business, so this is the optimal opportunity to negotiate a lower overdraft interest rate.
Possibly a more robust approach would be to forget about overdraft interest rates altogether and implement a credit card to serve as overdraft protection. Many consumers will set aside one of their various lines of credit especially for this purpose, and if your bank account ever accidentally goes negative, the funds are taken from the credit card instead of the overdraft fee. Almost all major banks accept credit cards as a form of overdraft protection, but it’s not advertised anywhere inside their branches simply because it limits your earnings.
Another smart method to avoid an overdraft interest rate and other bank fees is to open a savings account within that same institution. Many consumers who have direct deposit through their workplace will choose to have $5 to $10 US dollars (USD) of each paycheck applied to a savings account, with the rest falling into the regular checking account. If the account balance ever goes negative, funds are automatically taken from the additional account with no fees or consumer penalties. This is considered a smart business strategy to avoid paying an overdraft interest rate, and it’s also a great way to start saving money for a vacation or just a rainy day.
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