Remember when banks feared that new consumer protections would make it harder to charge overdraft fees? That those protections would imperil the financial industry and lead to the death of free checking accounts? Well, overdraft fees set something of a record in 2016, with banks collecting $33.3 billion last year—their highest level since 2009, according to a report by Moebs Services Inc.
So why are overdraft fees on the rise? Jonathan Morduch and Rachel Schneider, in their book “The Financial Diaries: How American Families Cope in a World of Uncertainty,” conclude that much of American financial suffering (and budgeting missteps) are the result of month-to-month cash-flow problems and income volatility.
Fortunately for anyone who has struggled with money management, there’s an app to help with that. In fact, there are several. Here’s a closer look at four cash-flow management apps—and what they can do to help you better manage your monthly money.
1. Dave Warns of Impending Overdrafts
One of the apps making the most noise right now goes by the name Dave. It launched with a bit of fanfare in April, thanks to an investment (and loud endorsement) from billionaire Mark Cuban. While Dave has a feature that works like a cash advance, its main purpose is to warn users before they make a purchase or pay a bill that sends their account into the negative, according to CEO Jason Wilk. The app links to consumers’ checking accounts and watches spending patterns and upcoming automatic payments, then tries to give seven days’ notice of a coming cash crunch.
“We don’t consider ourselves in the same market as other credit products,” Wilk wrote in an email. “First and foremost we are a product that alerts people about their upcoming bills and expenses so they have plenty of time to make a decision about their options. We consider this as much to be a smart budgeting app to avoid a negative balance.”
Consumers pay $1 a month for the app. Dave offers small cash advances (up to around $75, Wilk says) to cover what could have been an overdraft. Dave pays itself back as soon as the checking account has enough money in it. Right now, per-transaction fees are $3.50—the fee the firm pays the bank—and Dave asks only for a donation in the form of a tip. While some have raised concerns that the “tip” could end up being as expensive as payday loan interest, or that consumers who rely on Dave could end up stuck in a payday-loan-like cycle of repeat borrowing, Wilk argues that is unlikely.
“We don’t charge interest and we don’t run credit,” he noted. “We also don’t have a set payback period either, so our customers don’t get caught in a cycle of late fees or interest penalties.”
2. Propel Offers Easy Government Benefit Management
Other apps also try to help consumers understand their month-to-month spending habits. The Common Cents Lab at Duke University recently released a report on an experiment run using an app called Propel, which helps lower-income consumers manage their SNAP benefits. The researchers found that many consumers fall prey to what they call the “windfall” state of mind when a paycheck (or government assistance) arrives, leading them to overspend in the first few days after their money is deposited. By simply measuring out payments on a weekly—rather than a monthly—basis, Propel users stretched their food benefits an extra two days, the researchers said.
“For a family depending on SNAP to put food on the table, this can equal about six extra meals that month, just from this simple intervention,” Common Cents said in the report.
3. Float Provides Small Loans without Hard Credit Inquiries
Float, an app that launched in February of 2017, offers what feels like traditional payday loans—but with a twist. Instead of looking at credit scores, Float links to consumers’ checking accounts and examines spending habits to make lending decisions “without the negative effects of a hard credit inquiry,” the firm’s website says.
Users qualify for something like a small-dollar line of credit they can access with a simple text message like “get $100.” Most loans come with a 5% fee and must be paid back in less than a month. While it’s not the same as Dave’s tip-based fee system, that small transfer fee—and the similarly small late fee of $15—is much less than many payday loan companies charge.
According to Float’s website, the app is available only to residents of California and Utah at the moment.
4. Activehours Grants Easy Payday Insights and Advances
Like Dave, Activehours fronts the money for its users and asks only for tips. It links to hourly workers’ accounts and advances pay they’ve already earned but haven’t yet received in a paycheck. Employees from over 25,000 companies are using it, said spokesperson Kate Austin in an email. The app is designed to help cash-poor consumers get access to money they’ve earned more quickly. The only fee is a voluntary “tip.”
“We’re actually not a loan at all,” Austin said. “We believe people should be given access to the money they earn as they earn it. So, we created an app that lets people see how much they have in their bank account as well as what they’ve earned but haven’t yet been paid for,” she said. “Then, if they need access to their earnings, they can use the Activehours app to move it immediately to their checking account.” She stressed that users always have the option to pay nothing for the paycheck advance—certainly a better option than some payday advance products offered by banks and non-bank lenders.
Fighting the Ongoing Cash-Flow Problem
None of these apps solve the fundamental problem facing consumers who might be tempted to use them: not enough income to escape the “just make it to the end of the month” cycle. Any cash-infusion tool is just a stop-gap solution. It might work once or twice a year—and “The Financial Diaries” suggests some consumers could benefit from such occasional cash-crunch help—but payday borrowers often find they can’t repay their loans when payday arrives. Back in 2014, the Consumer Financial Protection Bureau found that four out of five payday borrowers rolled their loans over at least once, and over one-fifth of the loans were renewed six times.
Users of any cash-flow stop-gap solution face the same issue: borrowing money just in time to make this month’s rent isn’t going to solve the problem of next month’s rent.
Consumers intrigued by the balance-monitoring features of apps like Dave might find similar tools offered directly by banks or by services like Mint.com. And while it may not be the long-term solution some may desperately need, anything that provides alternatives to triple-digit payday loans is probably a welcome addition to the marketplace.
Worried about Overdrafts? Do This Right Now
You can take more direct steps to avoid overdraft fees at your bank. Most banks allow you to link savings accounts or credit cards (from the same institution) to your checking account, which provides you with an extra layer of backup in the event of an overdraft. There is usually a fee to use it, but it’s far less than overdraft fees or bounced check fees.
Finally, make sure you opt out of your bank’s overdraft protection, a service that will cover transactions you don’t have the money for—at the cost of a $20+ fee. Even if you think you are opted-out, it’s worth double-checking. This prevents only certain kinds of overdrafts, such as withdrawing more cash at an ATM than is available in your balance. You can still “go negative” if you write a too-large check, for example, but reducing the ways you can accidentally overdraft (and get hit with hefty overdraft charges) is always a good idea.
If you’ve taken all of the above steps and are still having trouble managing income flow, it might be time to consider applying for a credit card. Before you settle on a card, though, it’s wise to check your credit report first—which you can do for free at Credit.com—so you can find a card that matches your credit rating.