Money Management

Taking your account into the red can be costly. In a worst-case scenario, your bank could close your account. Find out how to manage the consequences. 

Overdrawing a bank account is when your balance goes below $0. It isn’t ideal, but it can happen. Perhaps you forgot about an automatic payment or misjudged how much money you had. Or maybe you’re having trouble juggling your bills and there isn’t enough to see you through until payday.

If you overdraw your checking account, you’ll usually need to pay a fee of some sort. If you regularly overdraw or stay overdrawn for a long time, your bank might close your account. The exact consequences depend on your bank, the type of transaction that sent you into the red, and whether you’ve opted in to overdraft coverage or protection.

The difference between overdraft protection and overdraft coverage

People used to be signed up for overdraft coverage automatically, but now it is something you have to agree to — at least for debit card and ATM transactions. If you opt in, your bank will process a transaction, even if it sends you into the red. However, you’ll be charged a fee for the privilege.

Research from the Consumer Financial Protection Bureau (CFPB) puts overdraft fees at between $10 and $36 per transaction for most top banks. Many cap the number of fees they’ll charge each day. Some banks, including Citi and Capital One, have gone further and abolished overdraft fees altogether. Others offer cushions and grace periods to give customers a chance to avoid charges.

Some people use the terms “overdraft protection” and “overdraft coverage” synonymously. But several big banks draw an important distinction. Overdraft protection means your bank will transfer money from a linked account — such as a savings account or credit card — to cover the deficit.

There’s often a fee involved, but it’s usually less than the overdraft fee. For example, U.S. Bank’s $12.50 overdraft protection transfer fee is almost a third of its $36 overdraft fee. Some banks, such as Bank of America and Wells Fargo, don’t charge overdraft transfer fees.

How you can avoid overdraft fees

Even with limits on the number of daily overdraft transaction fees, overdraft costs can still add up quickly. Let’s say your bank charges $35 per overdrawn transaction and has a cap of three fees per day. You use your debit card to buy groceries, not realizing your account is near $0. You buy a couple more items in another store and then stop for a coffee on the way home. Before you know it, you’ve racked up $105 in fees.

The good news is that there are ways to avoid overdraft fees. These include:

Set up balance alerts: If you’re not someone who regularly checks your bank account balance, a low balance alert could help you avoid an overdraft. Your bank will message you when your balance falls below a certain amount.Opt out of overdraft coverage: This will mean the bank rejects debit payments and ATM withdrawals that would take your balance below $0. You may still be charged if an automatic payment sends you overdrawn, but you’re less likely to accidentally make multiple overdrawn transactions.Check your bank’s overdraft policies: As we saw above, overdraft policies and fees vary wildly from bank to bank. Find out what your bank charges, and in what scenarios. For example, the U.S. Bank fees above only kick in if you overdraw by more than $50. It also has a grace period of a day to bring your balance back into credit.Choose a bank with customer-focused overdraft policies: Some banks have been more proactive than others in tackling overdrafts. If you worry about overdrawing, look for banks that don’t charge overdraft fees. Other perks to watch out for include accounts that give you a grace period before charging you or a cushion that lets you overdraw slightly without penalty.Consider setting up a linked account: There are pros and cons to linking a savings account or credit card to your checking account. For example, if you link up your credit card, it may get treated as a cash advance, which could involve a fee and a higher interest rate.Give yourself a buffer: In my younger days, my head-in-the-sand approach to my money cost me a lot in overdraft fees. As a result, I now avoid automatic bill payments and always keep a buffer of around $300 in my checking account.

What happens if your account stays overdrawn?

Overdrawing occasionally could cost you in terms of fees. But as long as you bring your balance back into the black quickly, you’re unlikely to face serious consequences. For example, overdrawing your bank account won’t directly affect your credit score. Banks have a different system called ChexSystems that tracks things like overdrafts.

Unfortunately, if your account is overdrawn for a long period or you regularly slip into the red, the bank may close your account. In this scenario, it may send the money you owe to a debt collector, which would impact your credit. Plus, a low ChexSystems score could make it difficult to open a bank account.

In an ideal world, we’d all avoid overdrafts completely. Since we don’t always live in an ideal world, take steps to minimize the impact of overdrawing. That might mean finding a bank that’s gotten rid of overdraft fees or has a sizable buffer. Having an emergency fund will help avoid a prolonged overdraft, as you’ll be able to funnel extra cash into your checking account if necessary.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Emma Newbery has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and U.S. Bancorp. The Motley Fool has a disclosure policy.

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Even if you’re not traveling for the holidays, you can take lessons from around the world. Read on for new ways to celebrate that can cost you less. 

“Buy now!” “Biggest sale of the year!” “Spend! Spend! Spend!”

It’s become a tradition for Americans to go on a seemingly nonstop shopping spree once we leave Halloween behind. At least that’s how it can feel as we fa-la-la-la fall into the holiday season, but it doesn’t have to be that way.

Whether you celebrate Christmas, Hanukkah, Kwanzaa, or something else, if you’re looking to create more meaningful moments with friends and family around the holidays — and give your bank account a bit of a break — consider adopting some of these traditions from around the world.

1. Jolabokaflod — Iceland

I learned about this one a few years ago, and it’s what kicked off my desire to incorporate new and thoughtful traditions in my own holiday celebrations. Roughly translated as “Christmas book flood,” jolabokaflod began during World War II in Iceland when residents, limited by wartime rations, gave more books as gifts. Presents are traditionally opened on Christmas Eve there, and Icelanders dive straight into their books after unwrapping, often while enjoying hot chocolate.

That sounds like just about the coziest thing I can think of, and a pleasant way to spend Christmas Eve with your book-loving family curled up on comfy couches around a fire. If you’d like to give jolabokaflod a try, head to your local bookstore and browse the shelves to find a book tailored to each of your family members’ interests, and buy some specialty chocolate bars to pair with them. Or make a big batch of cocoa from scratch on Christmas Eve to dole out while everyone opens presents. It will be a lot easier on your credit card than buying all the new tech gadgets on the market.

2. Beach barbecue — New Zealand

If you live in a climate that’s amenable to outdoor activities during the holidays (I miss you, California!), why not follow the Kiwis’ lead and take advantage? New Zealanders are heading into full summertime right now, and their holiday celebrations often reflect that.

Rather than roasting inside for a traditional American holiday meal, take the fun to the backyard, park, or beach and enjoy the good weather. You can use a grocery credit card to earn cash back on your food purchases and coordinate with loved ones so everyone contributes a favorite dish. You don’t have to create a pricey fancy meal to enjoy the day together.

3. La Ribote — Martinique

The French Caribbean island has a wonderful Christmas tradition that incorporates a lot of what the season is about — family, neighbors, good food, and good cheer. Residents in Martinique celebrate with La Ribote, in which people go from house to house in the morning, singing Christmas songs and sharing food with neighbors along the way. It sounds like a big, festive block party.

While you may not know all your neighbors that well, or may not feel like sharing your gift of song (or lack thereof), I love the idea of getting together with friends to share food and good cheer. Maybe you could pop by your friends’ homes with homemade treats and warm wishes on a holiday tour around town.

4. Osouji — Japan

New year, new you, as the saying goes. So what better way to get a fresh start in 2024 than to adopt Japan’s tradition of osouji and give your home a proper cleaning? Wait, come back! I know it doesn’t sound that fun to do a bunch of dusting in that twilight-zone week between Christmas and New Year’s, but let me see if I can convince you.

You probably just received a bunch of new belongings, like clothes, electronics, or random doodads, and maybe you’re not sure where to put all of them. Why not give your home a thorough decluttering to make room? It’s a great opportunity to give your possessions some attention and decide what’s really worth keeping. You can donate the gently-used items you no longer have use for, or you can list them for sale online to find them a new home.

This is also a great opportunity to give your personal finances a good clean-up. Why not look at your expenses for the previous year and set up a budget for 2024? Or go through your credit card statements to find places to cut back, like streaming services you don’t use or too many food delivery purchases.

Celebrate spending less

I’m all for spending money on meaningful things, and the holidays are definitely worth spending on. But take some time to see whether you need to spend so much, and consider adopting new traditions that can help you enjoy the holidays even more.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Unlimited drink packages on cruise ships may sound expensive, but are they worth the price tag? Let’s take a look. 

Is it worth buying the CHEERS! program on your next Carnival cruise so you don’t have to worry about paying for drinks as you go? CHEERS! is best-known for being Carnival’s unlimited alcoholic drink package, but there is actually a lot more to it than that. It certainly does include alcoholic drinks, but despite the popular misconception, it isn’t truly unlimited.

Carnival caps alcoholic beverages at 15 per passenger, per day, regardless of whether they’re paid for with a drink package or not, assuming the passenger isn’t visibly intoxicated. There is no limit on non-alcoholic beverages if you have CHEERS!, however.

With that in mind, the CHEERS! program includes the following:

Beer, wine, and cocktails up to $20 eachSodasNon-alcoholic frozen cocktailsEnergy drinksSpecialty coffeesHot teaBottled waterOther non-alcoholic bottled beverages

In addition, you can get 25% off the cost of wine or cocktails that cost more than $20, and on all bottles of wine. You can also get 25% off beverage seminars and classes offered on board the ship.

CHEERS! does not include any drinks sold with souvenir glasses (like those it typically offers on embarkation day). You can’t use it for any room service or mini-bar purchases. And, you can’t use it to purchase beverages that are typically shared, such as buckets of beer, just to name some of the main exclusions.

How much does the CHEERS! program cost?

The CHEERS! program can only be purchased for the entire length of your cruise — not on a day-by-day basis. And it’s important to realize that if one person in your cabin buys CHEERS!, everyone else in your cabin who is 21 or older must buy it as well.

In most cases, CHEERS! can be purchased before your sailing for $59.95 per person, per day. The onboard price is $74.95 per person, per day.

For cruises of three to five nights departing on Dec. 1, 2023 or later, the CHEERS! program will cost an additional $10 per day, making the prepaid and onboard rates $69.95 and $84.95, respectively.

An 18% service charge (gratuity) is also added to the package upon purchasing.

Here’s how it works: Let’s say that you and a companion (over 21) are booked on a 7-night Carnival cruise. If you buy CHEERS! before your sailing date, you’d pay $59.95 per day, per person, for seven days, for a total of $839.30. Adding the 18% service charge makes the total $990.37 for two people.

Is it worth it for you?

In many cases, the answer is a clear yes or no. If you’re actually going to max out and utilize 15 alcoholic beverages each day of your cruise, the CHEERS! program is a good value. And if you aren’t planning to drink at all, the answer is an obvious no. But the bulk of cruisers fall somewhere in between.

It also complicates matters that different types of drinks have different prices. A can of beer and a specialty mixed drink won’t cost the same amount, for example. Here’s a quick pricing reference from Carnival’s website:

If you want to do the math and calculate your savings potential, ask yourself how many of each category of beverage you’d likely order in the average day. Add up the prices and compare it with the per-day cost of the CHEERS! program for your cruise to see if the cost is justified.

Of course, there are other benefits of the CHEERS! program to consider. For example, you can order a drink or specialty coffee you aren’t sure you’ll like — and if you don’t like it, simply order another one without wasting any money. And since bottled water is included, you can simply ask for one every time you order a drink and carry them with you throughout your trip.

The bottom line is CHEERS! can certainly be worthwhile on your next Carnival cruise, even if you don’t plan to drink a lot of alcoholic beverages. But it depends on your preferences, budget, and how much you’ll utilize the various beverage options that come with it.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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