The basics: what an overdraft is and how it starts
An overdraft happens when you spend more money than you have in your checking account. Your bank lets the transaction go through anyway — paying the store, the online seller, or whoever you sent the money to — even though your balance goes negative. You now owe the bank money.
This can happen in different ways. You might write a check for more than your balance. You might swipe your debit card at a store. You might set up an automatic payment that pulls more than you have. Or you might withdraw cash from an ATM. The moment your balance drops below zero, you have overdrawn your account.
Most banks do not stop these transactions automatically. Instead, they process them and charge you a fee — usually called an overdraft fee or NSF fee (non-sufficient funds). The fee itself can range widely depending on your bank, but it is typically between $25 and $35 per transaction.
Key Takeaways
- When you overdraw, your bank pays the transaction and charges you a fee, usually $25 to $35, though the exact amount depends on your bank.
- Multiple overdrafts in one day can each trigger a separate fee, so a single shopping trip can cost you $50 to $100 in fees alone.
- You must repay the negative balance plus all fees before your account returns to zero, and interest may accrue on the negative balance depending on your bank.
- Overdraft protection — a link to a savings account or credit line — can prevent overdrafts, but it may charge a smaller fee or interest instead.
- Your bank reports overdrafts to ChexSystems, a banking history database, which can make it harder to open accounts at other banks.
How overdraft fees stack up quickly
One overdraft fee is painful. Multiple overdrafts in a single day can be devastating. Many banks charge a separate overdraft fee for each transaction that overdraws your account, even if they all happen on the same day. If you swipe your debit card three times while overdrawn, you may be charged three separate fees — $75 to $105 total.
This happens because banks process transactions at different times. You might have $50 in your account in the morning. You buy lunch for $12, then gas for $40, then groceries for $30. Each transaction individually overdraws you, so each one triggers a fee. By the end of the day, you owe the bank $122 in negative balance plus $75 to $105 in fees.
Some banks cap the number of overdraft fees you can be charged in a single day — often at three or four fees maximum — but not all do. Check your account agreement or call your bank to find out their policy.
What you owe and when you have to pay it back
When you overdraw, you owe two things: the negative balance itself, and the overdraft fees. You must bring your account back to zero or above. Your bank will not let you make new transactions until you do, and they may freeze your account if the negative balance sits unpaid for too long.
The timeline depends on your bank. Some banks give you a few business days to deposit money and cover the overdraft. Others demand repayment within 24 hours. A few will close your account if you do not repay within a week. Read your account agreement or call your bank to know their specific policy.
Some banks also charge interest on the negative balance — treating it like a short-term loan. This is less common than overdraft fees, but it does happen. The interest rate is usually much higher than a credit card rate, sometimes 20% or more annually. Even a small negative balance can accrue $5 to $10 in interest if it sits unpaid for a week.
Overdraft protection: preventing overdrafts before they happen
Many banks offer overdraft protection, a service that links your checking account to a savings account, money market account, or credit line. If you overdraw your checking account, the bank automatically transfers money from the linked account to cover the shortfall. This prevents the overdraft from happening in the first place.
Overdraft protection does not eliminate fees entirely — most banks charge a smaller fee for using the protection, usually $10 to $15 per transfer — but it is far cheaper than an overdraft fee. Some banks offer overdraft protection for free if you maintain a minimum balance in your savings account or meet other conditions.
If your overdraft protection is linked to a credit line instead of a savings account, the bank may charge interest on the borrowed amount rather than a flat fee. This works like a cash advance on a credit card: you pay interest until you repay the borrowed money. Compare the cost of overdraft protection to the cost of overdraft fees at your specific bank before deciding whether to use it.
How overdrafts affect your banking history
When you overdraw your account, your bank reports it to ChexSystems, a database that tracks banking history much like a credit bureau tracks credit history. Other banks can see that you have overdrawn accounts, and some banks use this information to decide whether to open new accounts for you.
A single overdraft usually does not disqualify you from opening a new account elsewhere. But multiple overdrafts, or an overdraft that remains unpaid for a long time, can make banks hesitant to work with you. Some banks will deny your process outright. Others will open an account but restrict what you can do with it — for example, no debit card or no online transfers.
Overdrafts stay on your ChexSystems record for five years. If you have overdrawn accounts, you can request a copy of your ChexSystems report to see what banks can see about you. You can dispute inaccurate information on the report, just as you can with a credit report.
Steps to take if you have overdrawn your account
First, deposit money to cover the negative balance and all fees as soon as you can. Call your bank and ask exactly how much you owe, including any interest that may have accrued. Some banks will waive one overdraft fee if you ask and have a good history with them, especially if this is your first overdraft. It is worth asking.
Once your account is back to zero, review what caused the overdraft. Did you lose track of your balance? Did an automatic payment surprise you? Did you not realize a check you wrote had cleared? Understanding the cause helps you prevent it from happening again.
If overdrafts are a pattern for you, consider switching to a bank that does not charge overdraft fees, or one that offers a grace period before charging. Some online banks and credit unions have lower or no overdraft fees. You might also ask your bank about setting up overdraft protection or setting up alerts that notify you when your balance drops below a certain amount.
Alternatives if you cannot repay the overdraft right away
If you cannot deposit money to cover the overdraft when ready, contact your bank and explain your situation. Some banks will work with you on a repayment plan, especially if the overdraft is small and you have been a customer for a long time. This is not may provide, but it is worth asking.
Do not ignore an unpaid overdraft. Banks can close your account and send your debt to a collection agency. This damages your credit score and makes it much harder to open bank accounts in the future. If you are struggling to repay, talking to your bank is always better than avoiding the problem.
If your overdraft was caused by a bank error — for example, the bank processed a transaction twice by mistake — ask the bank to investigate and reverse the fee. Banks do make mistakes, and they will correct them if you can show proof.
Frequently Asked Questions
Can a bank refuse to pay an overdraft and just decline the transaction instead?
Yes. Banks are not required to pay overdrafts. Many banks have stopped automatically covering overdrafts because of consumer complaints about high fees. If your bank declines the transaction, you will not be charged an overdraft fee, but the transaction will fail — your check will bounce, your debit card will be declined, or your automatic payment will not go through. Ask your bank what their overdraft policy is.
Will an overdraft hurt my credit score?
An overdraft itself does not directly hurt your credit score because banks do not report overdrafts to credit bureaus. However, if the overdraft goes unpaid and is sent to a collection agency, that collection account will appear on your credit report and damage your score. Paying the overdraft quickly prevents this.
What is the difference between an overdraft fee and an NSF fee?
An overdraft fee is charged when your bank pays a transaction even though you do not have enough money. An NSF (non-sufficient funds) fee is charged when your bank declines a transaction because you do not have enough money. The fee amounts are often the same, but they explore to different situations.
Can I dispute an overdraft fee?
Yes. If the fee was charged in error, or if your bank made a mistake processing your transactions, you can dispute it. Contact your bank in writing and explain why you believe the fee is wrong. Banks often waive one fee per year if you ask politely and have a good account history. There is no harm in asking.
Does overdraft protection cost money if I do not use it?
No. If you set up overdraft protection but never overdraw your account, you will not be charged anything. You only pay the transfer fee when the protection actually transfers money to cover an overdraft.