Your bank covers the transaction, then charges you a fee
When you spend more money than you have in your checking account, your bank can choose to cover the difference. This is called overdraft coverage. The transaction goes through — your check clears, your debit card payment processes, your bill gets paid — but your account balance drops below zero. Within one to three business days, the bank charges you an overdraft fee, usually between $25 and $35 per transaction, though the amount varies by bank.
The key word is "can." Your bank is not required to cover overdrafts. Some banks decline the transaction instead, which stops the payment from going through and prevents the fee. But most large banks have overdraft coverage turned on by default, which means overdrafts happen unless you specifically ask to turn the feature off.
Once your account is negative, you owe the bank money. You are not borrowing it formally — there is no loan agreement or interest rate — but you cannot use that account again until you deposit enough to cover both the negative balance and any fees the bank has already charged.
Key Takeaways
- When you overdraft, your bank covers the transaction and your balance goes negative, then the bank charges you a fee within a few days.
- Overdraft fees are usually $25 to $35 per transaction, and multiple overdrafts in one day can result in multiple fees.
- You can turn off overdraft coverage so transactions decline instead of overdrafting, though this may cause checks to bounce or bills to fail to pay.
- The longer your account stays negative, the harder it becomes to recover because each day you cannot deposit money without paying back what you owe first.
- Some banks offer overdraft grace periods or waive the first overdraft fee per year, but these policies vary widely.
How overdraft fees stack up when multiple transactions hit at once
If you overdraft once, you pay one fee. But if your account is already negative and another transaction goes through, you pay another fee. This is where overdrafts become expensive quickly.
Say your balance is $50 and you make three debit card purchases of $30 each on the same day. Your bank processes these transactions, your account goes to -$40, then -$70, then -$100. You now owe three overdraft fees — $75 to $105 total — on top of the $100 negative balance. Your total debt to the bank is $175 to $205.
Some banks charge one fee per day instead of per transaction, which caps the damage. Others charge per transaction no matter how many happen in a single day. Check your bank's overdraft policy in your account agreement or by calling customer service — the fee structure is in there, but it is not always straightforward to find.
What happens if you do not deposit money to cover the negative balance
If you leave your account negative, the bank will not close it when ready. But you cannot use it. Any deposit you make goes toward paying back what you owe before you can spend it. Any transaction you attempt will be declined or will create another overdraft and another fee.
After 30 to 60 days of a negative balance, many banks will close the account. When an account is closed for this reason, it appears on your banking history, which can make it harder to open a new account elsewhere. Some banks report closed accounts to ChexSystems, a banking history database that other banks check when you explore.
If the negative balance is large enough or stays unpaid long enough, the bank may send your debt to a collection agency. This is rare for small overdraft amounts, but it happens. A collection account will damage your credit score and can follow you for years.
Turning off overdraft coverage to prevent fees
You can ask your bank to turn off overdraft coverage. When you do, transactions will be declined if you do not have enough money. Your debit card will not work, your check will bounce, your bill payment will fail. You will not pay an overdraft fee, but the transaction will not go through.
A bounced check or failed bill payment can create its own problems. Your landlord or creditor may charge you a late fee. A bounced check can cost you $15 to $25 from the person you wrote it to. But for many people, a declined transaction is better than a $35 fee plus the spiral of overdrafts that follows.
To turn off overdraft coverage, contact your bank by phone, in person, or through your online account. Ask them to disable overdraft protection or overdraft coverage on your checking account. Some banks call it different things — "bounce protection" or "courtesy overdraft" — so be specific: you want transactions declined rather than covered.
The difference between overdraft coverage and overdraft lines of credit
Overdraft coverage (what we have been discussing) is when your bank covers the transaction and charges a flat fee. An overdraft line of credit is different: it is a small loan your bank offers you, usually $500 to $1,000, that kicks in if you overdraft. You pay interest on the amount you borrow, not a flat fee.
A line of credit can be cheaper than overdraft fees if you overdraft often and the overdraft is small. But it is more expensive if you overdraft large amounts or leave the balance unpaid for months. Interest compounds, which means the longer you owe, the more you pay.
Most people do not need either one. The goal is to keep your balance above zero by checking it before you spend and by setting up alerts so you know when you are getting close to running out of money.
How to recover from an overdraft
The first step is to deposit money. Deposit at least enough to cover the negative balance plus the overdraft fees. If your balance is -$60 and you have been charged a $35 fee, deposit at least $95.
Once your balance is positive again, ask your bank to waive the overdraft fee. Many banks will waive one fee per year if you ask, especially if you have been a customer for a while and this is your first overdraft. It costs nothing to ask. Call customer service, explain what happened, and request a one-time courtesy reversal. Some banks will do it; some will not. But if you do not ask, the answer is automatically no.
After that, set up a buffer. Keep $100 to $200 more in your account than you think you need. This cushion prevents overdrafts when you forget a transaction or when a charge posts on a different day than you expected. It is not perfect protection, but it is the most reliable way to avoid fees.
Setting up alerts and automatic transfers to stay ahead
Most banks let you set up balance alerts — notifications that text or email you when your balance drops below a number you choose. Set an alert at $200 or $300, depending on how much you spend in a typical week. When you get the alert, you know it is time to be careful with spending or to deposit money.
Some banks also offer automatic transfers from a savings account to your checking account if the balance gets too low. You set the threshold — say, $100 — and if your checking account drops below that, the bank automatically moves money from savings to checking. This costs nothing and prevents overdrafts if you have savings to transfer from.
If you do not have a savings account yet, opening one takes 15 minutes online or in person. Even $50 to $100 in savings can be enough to cover an unexpected overdraft and save you a $35 fee.
Frequently Asked Questions
Can a bank charge me multiple overdraft fees in one day?
Yes. Most banks charge one fee per transaction, so if you make three purchases that overdraft your account, you pay three fees. Some banks cap fees at one per day. Check your account agreement or call your bank to find out which policy applies to you.
Will an overdraft hurt my credit score?
An overdraft by itself does not hurt your credit score because banks do not report overdrafts to credit bureaus. But if the overdraft goes unpaid for months and the bank sends it to a collection agency, that collection account will damage your credit.
What is the difference between overdrafting and bouncing a check?
Overdrafting means your bank covers the transaction and your balance goes negative. Bouncing a check means your bank declines the transaction because you do not have enough money. With overdraft coverage on, checks do not bounce — they overdraft instead.
Can I overdraft my account at an ATM?
Most ATMs will not let you withdraw more than your balance. But some banks allow overdrafts at their own ATMs. Check with your bank about their ATM overdraft policy.
How long does it take for an overdraft fee to show up?
Usually one to three business days. The transaction goes through when ready, but the fee appears later when the bank processes it. During that time, your balance may look different online than it actually is.