Costly Mistakes: How Overdraft Fees Work (And What You Can Do to Avoid Them)

If you were subject to an overdraft fee, act quickly to avoid further costs.
11/6/19 | By Matt Miczulski
Woman looking at her smartphone

FinanceBuzz is reader-supported. We may receive compensation when you click links to products or services mentioned in this story. The opinions and recommendations are the author's own and have not been reviewed, endorsed, or approved by any of these entities. Learn more about how we make money.

There’s nothing more deflating than checking your balance only to find out you’ve overdrafted your account. It’s not only the fact that your money management skills need improvement that cuts deep but also the fee the bank charges you for making the mistake in the first place.

Depending on how quickly you react, overdraft fees can continue to add up until you remedy the situation by funding your account. This can make you feel you’re personally being targeted for a simple mistake, but you’re not alone. According to a 2018 report released by the Center for Responsible Lending that analyzed Federal Deposit Insurance Corporation (FDIC) data, banks collected more than $11.45 billion in overdraft fees in 2017.

You’re reading that right. $11.45 billion.

While this is in part due to abusive overdraft fee practices, understanding exactly what overdraft fees are and how to avoid them can be the difference between keeping your money in your pocket or becoming a statistic. Here’s all you need to know about overdraft fees.

Jump To

What is an overdraft fee?

An overdraft fee is charged when your available bank account balance isn’t enough to cover a payment or withdrawal. If the transaction isn’t immediately declined because of insufficient funds, your bank may cover the transaction with an overdraft protection service. While you’ll be able to make that purchase or withdrawal, your bank will charge a fee for covering the cost for you.

Overdraft fees are typically reserved for checking accounts, though savings accounts can also be overdrawn. According to Chime Bank, a mobile bank that delivers customers a nearly fee-free banking experience, the average overdraft fee is $35 and you can expect a maximum of four to six overdraft fees per day. You can see how they quickly add up.

How much do overdraft fees cost?

While overdraft fees are usually discussed as being just one fee, there are actually several types of bank overdraft fees, each with their own associated costs.

Overdraft fee

The overdraft fee is the most common fee imposed on checking accounts. This fee is levied on your account each time the bank processes a transaction that exceeds the available funds in your account. As mentioned above, the average overdraft fee is $35, but they can range from $9 to $38 for each transaction.

Each bank sets their own policies when it comes to how much it will charge you as an overdraft fee, as well as the number of overdraft fees your account will be subject to in a day.

Overdraft protection fee

Some banks offer an opt-in overdraft protection program that will cover you should a transaction exceed your available balance. This works by linking your checking account to another account, which will act as a safeguard against overdrafts, transferring money should your checking account come up short.

Banks often charge a monthly service fee to use this feature, and this fee can be steep. Bank of America, for instance, imposes an overdraft protection transfer fee of $12 per transfer.

Extended overdraft fee

On top of a fee for each transaction that your available balance can’t cover, many banks will charge an overdrawn balance fee if you leave an account in the red for a certain number of days — usually five to seven days.

Some banks charge this fee once every five to seven days, while others may charge it every day until you add enough funds to put your balance back over zero. Extended overdraft fees can be as much as $36 each time, but will vary from bank to bank. PNC Bank, for instance, charges $7 each day your account remains overdrawn for a period of five or more days.

NSF fee

Similar to an overdraft fee, a non-sufficient funds (NSF) fee might be imposed on your account if your bank rejects a transaction because your account balance isn’t enough to cover the transaction.

If you have overdraft protection, the bank might process the transaction, since you have a secondary means for paying for it. If you don’t have overdraft protection, however, the bank might reject the transaction and an NSF fee will be charged. This amount can vary depending on the bank.

4 tips to stop overdrafting

  1. Avoid spending more than you have available: This might be the most obvious solution, but it requires that you manage your money properly. That means knowing how much you’re bringing in each month versus how much you’re spending. Creating a budget is the best way to ensure you aren’t slapped with a fee for accidentally overspending.
  2. Consider opting into overdraft protection, but be careful: Overdraft protection can help you avoid costly overdraft fees, but consider how much it costs to use this feature. Additionally, overdraft protection means your linking your checking account to another account, such as a savings account. If you use this feature to cover a transaction, be mindful of the account you’re withdrawing from to cover the costs.
  3. Open an account with a fee-free bank: Another way to avoid overdraft fees altogether is to bank with institutions that either don’t charge or waive these types of fees. Even if your bank avoids these fees, practicing proper money management is still ideal.
  4. Sign-up for mobile or online alerts: Some banks will offer a feature you can sign-up for that will alert you when your available balance drops below a certain amount. This gives you the opportunity to fund your account appropriately before it’s too late.

Bank accounts that do not charge overdraft fees

If you choose to bank with an institution that doesn’t impose overdraft fees, it’s one less thing you’ll have to worry about. Many online and mobile banks have gone in this direction, and, in addition to not charging overdraft fees, many have scrapped most other banking fees as well.

Chime Bank

Chime Bank is a fully-mobile bank that doesn’t make money off of you by charging fees. In fact, Chime doesn’t charge overdraft, minimum balance, transfer, foreign transaction, or monthly service fees. Chime makes a little bit each time you swipe your Chime debit card, paid by Visa.

There are no branches, as the bank is fully mobile, but it comes with a debit card and an optional Automatic Savings Account. Did I mention you can also get your paycheck early? Chime customers who set up direct deposit are eligible to receive their paychecks up to two days early.

Minimum deposit to open account None
Overdraft fee None
ATM access Yes, up to $500 of ATM withdrawals per day ($2.50 fee per transaction). Transactions at MoneyPass ATMs are free.
Transactions per month No limit on number of transactions ($2,500 maximum that can be spent on the card per day)
FDIC insured Yes

SoFi Money

When you open a SoFi Money account, you’re getting a cash management account that combines the features of a checking and savings account — the high APY of an online savings account, without the transaction limitations savings accounts are typically subject to.

There are no account fees, service charges, maintenance fees, or overdraft fees. If you’re charged an ATM fee by another institution, SoFi reimburses the amount of the fee.

Minimum deposit to open account None
Overdraft fee None
ATM access Yes, plus unlimited reimbursement for ATM fees
Transactions per month Unlimited number of transactions ($250 per day limit in peer-to-peer transfers, 12 point-of-sale transactions per day, and $610 in ATM withdrawals daily)
FDIC insured Yes

Citizen Access Online Savings Account

Citizens Access is an online-only bank that provides an online savings account with a high APY and low fees. Deposits can easily be made using your smartphone, but there’s no option for depositing cash, so you’re limited to transferring funds from an outside account or by depositing a check.

The minimum balance requirements are higher than many other online banks, but the bank’s no-fee structure might be worth it to you.

Minimum deposit to open account $5,000
Overdraft fee None
ATM access None
Transactions per month Up to six transactions per month
FDIC insured Yes

Common questions about overdraft fees

Can you get overdraft fees waived?

This depends on the bank; however, even if your bank charges an overdraft fee, if you don’t have a history of overdrawing your account, it can’t hurt to pick up the phone and speak to a representative. They may be willing to waive the fee for you.

Are overdraft fees charged daily?

Policies vary, but overdraft fees are generally charged based on the number of transactions that take place. If you have insufficient funds in your account to cover one expense, you’ll likely be subject to an overdraft fee. And if you make additional purchases while your account is below zero, you might incur additional fees. Extended overdraft fees can be levied daily until your account balance returns to above zero.

How long do you have to pay back an overdraft?

If you notice your account is overdrawn the same day the transaction takes place, you’ll likely be able to deposit additional funds to cover the amount that day without incurring any fees. Again, policies vary by bank, but the bank will usually levy the fee if the business day closes with your account in the negative.


Bottom line

Overdraft fees suck. While you’re responsible for ensuring that you’re properly managing your money, mistakes do happen. If this is the case and your bank is unwilling to work with you, it might be time to look for a new bank.

Keep track of your finances, check your accounts often, and consider banking with institutions that have their customers’ best interest in mind.

High Interest Checking Account

Benefits

  • 1.60% APY with no minimum balance
  • No monthly fees, no overdraft fees.
  • Unlimited ATM fee reimbursements and no ATM fees from SoFi
  • Get $50 when you fund your account with at least $100
Advertising Policy

FinanceBuzz.com is an independent, advertising-supported website. Some of the offers that appear on this page are from third party advertisers from which FinanceBuzz.com receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear).

FinanceBuzz.com does not include all financial or credit offers that might be available to consumers in the marketplace. FinanceBuzz.com does not include all companies or all available products.

FinanceBuzz has partnered with CardRatings for our coverage of credit card products. FinanceBuzz and CardRatings may receive a commission from card issuers.

Editorial Disclaimer

The editorial content on this page is not provided by any of the companies mentioned, and have not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone.