How to avoid financial pain over the Christmas break

Even if you only have to buy one or two Secret Santa gifts and a few drinks or Christmas cards, budgets have a way of getting out of whack at Christmas.

There are also ways we can end up frittering away money without even realising, such as getting caught out with an overdraft fee, honour or dishonour fees.

Canstar outlines what these fees are – and how you can avoid them – to help you dodge a nasty financial hangover in the New Year.

Track your bank balance

At some point in their lives, every Kiwi has thought they had sufficient money in their accounts to cover their spending, when in reality there wasn’t enough there. We’re all human and make mistakes.

Beware, as well, of assuming that a deposit has cleared when it hasn’t.  If you attempt to spend that money, you’re likely to be pinged with bank fees, which isn’t a nice thing to do to yourself just before Christmas.

The honour and dishonour of overdrafts

Sometimes shoppers don’t even realise they’ve overdrawn their accounts. The payment goes through, even though there isn’t enough money to cover it. In this situation banks usually charge an “honour” or unarranged overdraft fee and interest.  These fees can be as much as $25 a pop. On top of that, if you don’t have an arranged overdraft limit, or you exceed your limit, you can get charged excess interest on the amount you exceeded your overdraft limit by. Ouch.

If the bank chooses not to honour the payment, they will often charge a “dishonour fee”. Either way it can push your accounts well into the red. A dishonour fee is charged when there isn’t enough money in the account to make an automatic payment or transaction. Banks may charge a fee per failed transaction. So, if you have multiple failed payments, this could quickly add up!

Smart banking: How to avoid fees

If you want to avoid going into the red, we suggest you:

Check your balance before you go out as well as throughout the day if you’re on a shopping spree.  An easy way to do this is to make sure you have the banking app loaded on your phone.

Do the maths every time you hand over your credit, debit, or EFTPOS card and make sure you’ve left enough money left in your accounts to cover your regular bills such as utilities and credit card payments.

The Banking Ombudsman recommends asking if your bank can load a “no overdraft” alert on your account – but make sure you understand how it works, as alerts can differ from bank to bank. Some banks will also allow you to set up an alert to remind you when your credit card bill is due.

Create a Christmas budget or spending plan. If you earmark a certain sum for each present and also expenses such as food and alcohol and stick to those limits you should be able to avoid nasty surprises.

Check out our earlier guide on how to put aside savings for Christmas.

Get a better bank account

Make sure you shop around for accounts that meet your individual needs. Ask questions and make sure you understand all the charges.

If you do go into the red regularly, as well as working on a payment management plan, choose an account that charges one unarranged overdraft fee a month instead of individual honour and dishonor fees.

While you’re at it, it’s a good idea to compare transaction accounts, and online banking and find out more about budgeting and saving money.

If staying on top of bills and payments has been an ongoing problem, it might also be a good idea to get some free budget advice by visiting the website.

Finally, check out the Ombudsman’s: Quick Guide to Overdrafts.

Canstar offers free comparison tools, to help you work out which provider and product will work for your lifestyle. Not sure your transaction account is the right fit? We’ve compared the options for you:

Compare Savings & Everyday Transaction Accounts

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