How overdrafts work and what they cost you

An overdraft happens when you spend more money than you have in your checking account. Your bank may allow the transaction to go through anyway, but you will owe the bank the difference plus a fee. The fee is usually $25 to $35 per overdraft, though some banks charge more. If you overdraw multiple times in one day, you may be charged multiple fees.

Not all banks handle overdrafts the same way. Some will reject the transaction and decline your card or check. Others will let it through and charge you later. A few banks offer overdraft protection, which links your checking account to a savings account or credit line so money transfers automatically if you go negative. That usually costs less than an overdraft fee, but you still pay interest or a transfer fee.

The key difference is whether your bank has opted you into overdraft coverage. Federal law requires banks to ask your permission before they start charging overdraft fees on debit card and ATM transactions. If you never said yes, your card should be declined rather than triggering a fee. Checks and automatic bill payments may still overdraw your account even without your permission.

Key Takeaways

  • Overdraft fees typically run $25 to $35 per transaction, and multiple overdrafts in one day can result in multiple charges.
  • Your bank must ask your permission before charging overdraft fees on debit card and ATM withdrawals, though checks and automatic payments may overdraw without your consent.
  • Overdraft protection links your checking account to savings or a credit line and usually costs less than overdraft fees, but you pay interest or a transfer charge.
  • Once you overdraw, the negative balance accrues daily interest or fees until you deposit enough to cover it, and some banks may close your account if the balance stays negative too long.

When your bank will and won't let you overdraw

Whether a transaction goes through depends on the type of transaction and your bank's rules. Debit card purchases and ATM withdrawals are the easiest to stop — your bank can decline them at the point of sale if you do not have the money. If you have not opted into overdraft coverage, these should be rejected.

Checks and automatic bill payments are harder to block because they do not hit your account in real time. By the time your bank sees them, the transaction has already been promised. Your bank can still refuse to pay the check, but it will bounce, and you will owe a returned-check fee to the bank plus a fee to whoever you wrote the check to. An automatic payment that overdrafts your account will go through first, then you will be charged an overdraft fee on top.

Some banks also distinguish between standard overdraft (they let it happen and charge you) and overdraft protection (they move money from another account to prevent it). If you have overdraft protection set up, your bank will transfer funds automatically before charging a fee. This is usually cheaper, but you need to set it up in advance through your bank's website or by calling.

The real cost of overdrafting repeatedly

A single overdraft fee hurts, but the damage multiplies if you overdraw more than once. If you spend $50 more than you have and your bank charges $35, you now owe $85. If you overdraw again two days later, that is another $35 fee on top of the first one. Banks can charge up to four or five overdraft fees per day depending on the number of transactions, so a bad week can cost you $150 to $200 in fees alone.

The longer your account stays negative, the worse it gets. Some banks charge a daily fee if your balance remains below zero for more than a few days. Others charge interest on the negative balance, similar to credit card interest. A $100 overdraft that sits for a week can easily cost $50 to $75 in fees and interest combined.

If your account stays negative for 30 to 60 days, your bank may close it and report you to ChexSystems, a banking history database. This makes it harder to open a new checking account elsewhere, because other banks will see the closed account and may deny you. You will also owe the bank the full negative balance before they close the account.

How to stop overdrafting or recover from it

The fastest way to stop overdrafting is to know your balance before you spend. Check your account on your bank's app or website before making large purchases or paying bills. Do not rely on the balance your teller told you yesterday — it changes constantly as checks clear and automatic payments post.

Set up low-balance alerts on your bank's app. Most banks let you choose a dollar amount, and they will text or email you when your balance drops below it. If you get an alert, stop spending until you deposit more money. This costs nothing and catches problems before they become overdraft fees.

If you have already overdrafted, deposit money as soon as you can to bring your balance positive. Call your bank and ask if they will reverse one or two overdraft fees as a courtesy, especially if you have been a customer for a while and this is your first time. Many banks will remove one fee if you ask. Do not wait — the longer the account stays negative, the more fees pile up and the harder it is to recover.

If overdrafting is a pattern, consider switching to a bank that does not offer overdraft coverage or that makes it harder to overdraft. Some online banks and credit unions do not charge overdraft fees at all. Others require you to opt in to overdraft coverage, which means debit card transactions will be declined rather than overdrafting your account.

Overdraft protection as an alternative

Overdraft protection is a safety net that prevents overdraft fees by moving money from another account when you go negative. It works by linking your checking account to a savings account, money market account, or credit line at the same bank. When a transaction would overdraft your checking account, the bank automatically transfers enough money from the linked account to cover it.

The cost is usually a transfer fee of $5 to $10 per transfer, or interest on a credit line. This is cheaper than a $35 overdraft fee, but you still pay something. The real benefit is that you avoid the spiral of multiple overdraft fees in one day. If you overdraft twice, you pay two transfer fees instead of two overdraft fees — a savings of $40 to $50.

To set up overdraft protection, log into your bank's website or call and ask to link your accounts. You will need to have both accounts at the same bank. Some banks set it up automatically for savings accounts you already have; others require you to request it. Once it is active, you can usually see the transfers on your statement and adjust the settings if you want to turn it off.

Disputing overdraft fees you think are wrong

If your bank charged you an overdraft fee you believe was a mistake, you can dispute it. Common reasons include: the bank processed transactions out of order and charged you for overdrafts that would not have happened in the order you made them; you were not opted into overdraft coverage but were charged anyway; or the fee was charged twice for the same transaction.

Call your bank's customer service line and explain what happened. Have your statement in front of you and be specific about the dates and amounts. Ask the representative to review the transaction order and the overdraft settings on your account. If they agree it was an error, they will reverse the fee. If they say it was correct, ask to speak to a supervisor or request the decision in writing.

If your bank refuses to reverse the fee and you believe it violated federal overdraft rules, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) at consumerfinance.gov. The CFPB investigates complaints about overdraft practices and can pressure banks to change their policies. Filing a complaint does not may provide your fee will be reversed, but it creates a record if the bank is breaking the rules.

Frequently Asked Questions

Can I get overdraft fees removed if I call my bank?

Many banks will remove one or two overdraft fees if you ask, especially if you have been a customer for a while or if it is your first time overdrafting. Call customer service and explain the situation. They cannot remove all fees, but a single courtesy reversal is common. Ask for a supervisor if the first representative says no.

What is the difference between overdraft and insufficient funds?

Overdraft means your bank let the transaction go through even though you did not have enough money, and now you owe them. Insufficient funds means your bank rejected the transaction because you did not have the money. Insufficient funds does not cost you an overdraft fee, but it may cost you a returned-transaction fee from the merchant.

Will overdrafting hurt my credit score?

Overdrafting your checking account does not directly hurt your credit score because checking accounts are not reported to credit bureaus. However, if your bank closes your account due to repeated overdrafts and reports you to ChexSystems, it will be harder to open a new checking account. If the overdraft leads to a collection account, that will hurt your credit.

Can I overdraft my account on purpose to get a short-term loan?

You can, but it is one of the most expensive ways to borrow money. A $35 overdraft fee on a $100 overdraft for one week is like paying 1,820% annual interest. A payday loan or credit card cash advance is cheaper. If you need emergency money, look for a personal loan, credit union loan, or local emergency information program first.

What happens if I never pay back an overdraft?

Your bank will keep charging fees until your account is closed, usually after 30 to 60 days of negative balance. Once closed, you will owe the full negative amount plus all fees. The bank may send it to collections, which will damage your credit and result in collection calls and letters. You can also be sued for the amount owed.