Money Hack: How to avoid overdrawing your account
The product to consider if your account is always in the red.
Overdrawing your account is easy to do. It might be a day before you get paid when you go a few dollars over, or you might have your funds stashed in a savings account when your balance slips below zero.
While it's easy to do, it doesn't make those overdrawn account fees any easier to deal with. Not to mention the negative effect it can have on any future applications you make for credit (lenders that ask for your bank statements are unlikely to approve you if you are regularly overdrawing your account).
Check how often you're overdrawing your account and how much you're paying, then compare it to your bank's personal overdraft product. An overdraft is a small line of credit attached to your transaction account. Any time your balance reaches $0, you'll be able to draw up to and including that limit and then repay it at a variable rate.
The main catch with overdrafts are the costs, as you will generally be charged a monthly fee to use the overdraft as a cost for the convenience and the interest rates are usually the same as credit card rates, which can be between 14-17% p.a. However, some banks, such as CommBank, will only charge you fees and interest when you use the overdraft.
If you are regularly overdrawing, paying a monthly fee may still work out to be the cheaper option. Here is a breakdown of the personal overdrafts from the Big Four:
|Bank||Minimum limit||Establishment fee||Ongoing fees||Interest rate|
|CommBank||$100||$0||$10 monthly fee (charged when balance is over $10)||14.9% p.a.|
|NAB||$500||$0||$35 minimum line fee charged every 6 months based on your limit||12.77% p.a.|
|Westpac||$250||$0||$6 monthly fee||12.9% p.a.|
|ANZ||$500||$0||$5 monthly fee||16.85% p.a.|
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