How to Avoid Overdraft Fees at Your Bank

When you make a purchase or withdrawal from an account that doesn’t have enough money in it to cover the transaction, your bank will usually decline the transaction unless you’ve opted in for overdraft protection coverage.

While overdraft protection can protect you from the embarrassment of having your transaction declined, it may also cost you money. Overdraft fees can be over $35 per transaction, which can put a dent in your bank account.

Let’s look at options to avoid overdraft fees and keep that money in your account, including using one of the best checking accounts that doesn't have overdraft fees.

Key takeaways

• Overdraft fees are charged when you don’t have enough money in your account to cover transactions, but the bank or credit union pays the transaction anyway.
• You must opt-in for overdraft coverage.
• Overdraft fees can cost over $35 per transaction.
• The best banks don’t charge overdraft fees.

What is an overdraft fee?

An overdraft fee is a fee some banks and credit unions charge if the amount of a purchase or withdrawal exceeds the amount of money that you have in your bank account. Unlike non-sufficient funds, where the charge is simply declined, your bank will cover the overdraft transaction but charge you a fee for doing so. Those fees are often about $35 per transaction, according to the FDIC.

Not all financial institutions offer overdraft protection, but if they do, you generally have to opt in for the coverage. If you don’t opt in for overdraft protection, you could also face fees for non-sufficient funds (NSF). NSF fees are charged when an item is returned unpaid because your account is overdrawn.

5 ways to avoid overdraft fees

Overdraft fees can add up and cause significant strain on your finances. Thankfully, there are things you can do to help you avoid overdraft charges.

1. Monitor your bank accounts

If you monitor your checking account on a regular basis, you’ll know how much you can spend or withdraw from your account without getting overdrawn and incurring a fee. For example, if you only have $100 in your account, you shouldn’t spend $150 at the grocery store. Your bank may charge you an overdraft fee. That $150 in groceries will end up costing you $185 if your bank levies a $35 overdraft fee (or even more if you end up with multiple overdraft fees).

It’s especially important to monitor your account balances if you have set up automatic payments for your bills. It’s easy to forget an automatic payment is coming up and accidentally overspend.

2. Opt out of overdraft coverage

Overdraft protection is voluntary coverage, which means you have to opt in to get it. While it may sound like a good idea to save you the embarrassment of having a purchase declined, if you don’t monitor your accounts and find out you are incurring a lot of overdraft charges, the coverage could end up costing you more than it's worth.

3. Set up alerts for low balances

Most financial institutions enable you to set up alerts that notify you when your account balance gets low. You can set the balance amount at which the bank sends you a notification via either email or text. For example, you set your account’s low balance alert to automatically notify you when your account’s available balance reaches $100 or lower.

4. Link to another account

Some banks will let you connect a savings or money market account to your checking account to cover charges or withdrawals over what you have in the account. Many banks don’t charge for making the transfer. But if a bank does charge a fee for this service, those fees are typically lower than overdraft fees charged.

Your bank may also offer an overdraft line of credit to cover overdraft charges. However, you should be aware that this line of credit is similar to having a credit card, and you may be charged interest on top of any fees that are charged.

5. Choose a bank without overdraft fees

More and more banks are choosing not to charge overdraft fees to their customers. So if your overdraft charges are getting out of hand, you may want to consider moving your money to a bank or other financial institution that doesn’t charge overdraft fees.

Banks without overdraft fees

If you are looking to transfer your money to a financial institution that doesn’t charge overdraft fees, here are four options to consider.

SoFi Checking and Savings

SoFi® is one of the best online banks that offers high-yield checking and savings accounts. It offers overdraft coverage of up to $50 without fees. However, you will need to have a monthly direct deposit of at least $1,000 to be eligible for the overdraft coverage.¹ <p>Overdraft Coverage is limited to $50 on debit card purchases only and is an account benefit available to customers with direct deposits of $1,000 or more during the current 30-day Evaluation Period as determined by SoFi Bank, N.A. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Members with a prior history of non-repayment of negative balances are ineligible for Overdraft Coverage.</p> ² <p>New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Direct Deposits received during the Direct Deposit Bonus Period) <b>OR</b> $300 (with at least $5,000 total Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/2026. Full terms at <a href="http://sofi.com/banking">sofi.com/banking</a>. SoFi Checking and Savings is offered through SoFi Bank, N.A., Member FDIC.</p> <p>SoFi members with Direct Deposit can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the 4.00% APY for savings (including Vaults). Members without Direct Deposit will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of Dec. 3, 2024. There is no minimum balance requirement. Additional information can be found at <a href="http://www.sofi.com/legal/banking-rate-sheet">http://www.sofi.com/legal/banking-rate-sheet</a></p> Member FDIC.³ <p><b>SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/terms">SoFi.com/banking/fdic/terms</a> See list of participating banks at <a href="http://sofi.com/banking/fdic/receivingbanks">SoFi.com/banking/fdic/receivingbanks</a></b></p>

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Chime® 

Chime is not a bank but a fintech company.⁴ <p class="">Chime is a financial technology company, not a bank. Banking services and debit card provided by The Bancorp Bank, N.A. or Stride Bank, N.A.; Members FDIC.&nbsp;<br></p> It doesn’t charge many of the fees traditional banks charge, including overdraft fees.⁵ <p>There’s no fee for the Chime Savings Account. Cash withdrawal and Third-party fees may apply to Chime Checking Accounts. You must have a Chime Checking Account to open a Chime Savings Account.</p> With Chime’s SpotMe® Fee-Free Overdraft service, eligible members are covered up to $200 without fees or interest on debit card purchases and cash withdrawals. To be eligible to enroll in the coverage, you must have a monthly deposit of at least $200. SpotMe limits start at $20 and can be increased up to $200.⁶ <p>SpotMe® for Credit Builder is an optional, no interest/no fee overdraft line of credit tied to the Secured Deposit Account; SpotMe on Debit is an optional, no fee service attached to your Chime Checking Account (individually or collectively, “SpotMe”). Eligibility for SpotMe requires $200 or more in qualifying direct deposits to your Chime Checking Account each month. Qualifying members will be allowed to overdraw their Chime Checking Account and/or their Secured Deposit Account up to $20 in total, but may be later eligible for a higher combined limit of up to $200 or more based on member’s Chime account history, direct deposit frequency and amount, spending activity and other risk-based factors. Your SpotMe Limit will be displayed to you within the Chime mobile app. You will receive notice of any changes to your SpotMe Limit. Your SpotMe Limit may change at any time, at Chime or its banking partners’ discretion. Although there are no overdraft fees, there may be out-of-network or third party fees associated with ATM transactions or OTC cash withdrawal fees at retailers. SpotMe won't cover non card transactions, including ACH transfers, Pay Anyone transfers, or Chime Checkbook transactions. <a href="https://www.chime.com/policies/">SpotMe on Credit Builder Terms and Conditions</a>.</p> Chime is FDIC insured through its partner banks, The Bancorp Bank and Stride Bank.

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Capital One 360

Capital One 360 offers one of the best checking accounts that doesn’t charge overdraft fees. However, overdraft transactions are usually declined unless you opt-in to its no-fee overdraft service. You can also set your account to automatically transfer funds from a Capital One savings or money market account to cover overdraft transactions with no fees. Member FDIC.

Visit Capital One | Read our Capital One 360 review 

Discover 

Discover’s Cashback Debit checking account has no overdraft fees. You can set up overdraft protection by automatically transferring funds from a Discover savings or money market account. Plus, with the account, you can earn up to 1% cashback every month on purchases up to $3,000⁷ <p>See website for details.</p> . Member FDIC.

Visit Discover | Read our Discover review

FAQs

Bottom line

Overdraft protection sounds like a good thing to have, in theory. However, if your bank charges you hefty overdraft fees, that coverage could cost you more than it actually helps you.

Thankfully, there are options you have to avoid overdraft fees. You can bank with a financial company that doesn’t charge overdraft fees or closely monitor your account and set up automatic notifications so you know when your account dips below what you may need to cover your expenses. Or, you could opt out of overdraft protection coverage altogether and set up a savings or money market account to cover any overdraft charges you may make.

And many of the best banks don’t charge overdraft fees.