Overdrafting ranks up there with bumper-to-bumper traffic and running out of coffee: the worst.
Making a $10 mistake — to pay $35 in fees? How do they get away with this stuff?
Unfortunately, no matter how much you complain, you’re probably not going to change bank policy.
But you might have another solution: Dave.
No, not your coworker, or your old roommate, (though the founders do want you to think of Dave as a friend). It’s an innovative app that could prevent you from overdrafting.
The Big Deal With Overdrafting
When Jason Wilk, Dave’s co-founder and CEO, was in college, he overdrafted constantly.
“All the founders experienced overdraft fees,” says Wilk. “We saw it as a recurring problem.” Not only for themselves, either; they frequently saw overdraft woes pop up in the news or on Reddit.
And it’s no wonder. Overdraft and ATM fees cost customers at America’s three biggest banks $6.4 billion in 2016, according to an analysis by CNNMoney.
“The average expense amount that triggers an overdraft fee is $25,” Wilk says. “There needed to be a product that helps people maintain their expenses and avoid those small negative pitfalls.”
So Wilk and his friends decided to create an app to alleviate the problem. Also on board? Billionaire investor Mark Cuban, who had backed a few of Wilk’s previous companies.
“[Cuban] himself used to overdraft a lot when he was trying to make it,” says Wilk. “He became our lead investor in the seed round.”
How Dave Prevents You From Overdrafting
In April 2017, Wilk and his co-founders launched Dave, and today, the app has more than 400,000 users who each pay $1 per month.
Here’s a basic overview of what it does:
Assesses your income and spending patterns, then predicts how low your balance could get between now and your next paycheck.
Sends a warning if you’re at risk of overdrafting due to an upcoming predicted expense.
Calculates your cash flow at the end of each month: how many dollars came in and how many dollars went out (via your checking account).
Or, as Wilk says, “We’re thinking about it as Mint.com [a money-management tool] for the paycheck-to-paycheck world.”
How to Get On Board With Dave
To use Dave, you must first download the app (iOS/Android) and connect your checking account. Dave will then assess your income and expenses and attempt to establish patterns.
Say your cable bill is paid on the 11th of each month. Once Dave sees that, it will automatically set that bill up as a predicted expense.
You can also take matters into your own hands by turning your regular purchases into predicted expenses. If you go to lunch with the girls every month, for example, add it in so Dave will account for it.
If, at any point, your balance is going to dip dangerously low or a predicted expense may cause you to overdraft, Dave will warn you through a notification on the app.
“Because you’re taking control and adding predictions, you’re going to know well ahead of time what your chances are of overdrafting,” says Wilk.
If an overdraft is looming, you can take preventive measures: Pause your Netflix subscription, eat ramen for a week or transfer some money from your emergency fund.
Dave Also Offers Interest-Free Paycheck Advances
Or, if you’re out of options, you can ask Dave for an interest-free advance on your next paycheck.
You can request any amount up to $75. Then, when your next paycheck hits, Dave will withdraw the amount you borrowed — without any interest charges or fees.
The $75 limit is purposeful, according to Wilk. It’s enough to cover the essentials, but not so much that it could lead to irresponsible behavior or unnecessary reliance.
“There’s no place in the country you can go and borrow that little amount of money,” says Wilk. “Payday products allow you to access a large amount of money, but that can get people into a tough cycle of always relying on it.”
Not to mention, payday loans can have an interest rate of nearly 400%, whereas Dave’s advances don’t have any.
Though Dave doesn’t check your credit, you’re eligible for an advance only if you have some form of recurring income.
If you deposit money sporadically, the app won’t be able to discern when your next paycheck is due to arrive — and therefore won’t be able to offer you an advance.
“When we can’t find anything that’s reliable, the app gets harder to use.” says Wilk. “It’s very much geared toward people who have an idea of when they’re going to get paid — and that’s a big part of what gets you approved for the $75 advance.”
Tip Dave, Plant a Tree
Dave’s advances, as noted, are free — but if you’re grateful for the services, you can “tip” the company. For each percentage you give, Dave will plant a tree in Africa, according to its website.
For example, let’s say you borrowed $50. Tipping $5 would equate to 10%, so Dave would plant 10 trees.
Overall, Wilk says, he and his co-founders simply want Dave to be like your friend (your friend who looks like a bear and plants trees).
“Friends let you borrow around that $50 to $75 amount, don’t charge you interest and warn you about bad things that are going to happen to you,” he says.
For that “friendship,” Dave charges $1 per month with no contract.
If you mostly use credit — or rarely overdraft — that’s probably not worth it. But if you’re a chronic overdrafter who pays up to $450 in fees each year, it very well may be.
Susan Shain is a freelance writer and digital nomad. She covers travel, food and personal finance (basically, how to save money so you can travel more and eat more). Visit her blog at susanshain.com, or say hi on Twitter @susan_shain.