What happens when you overdraw your account
An overdraft occurs when you spend more money than you have in your account. The bank covers the shortfall temporarily, but you owe that money back when ready—plus a fee. The fee is usually $25 to $35 per overdraft, though some banks charge more. You may also face a daily fee if your account stays negative.
Not every transaction triggers an overdraft. Debit card purchases, checks, and ACH transfers (like bill payments) can overdraw you. ATM withdrawals can too. But some banks decline these transactions instead of allowing them to go through negative. The rules depend on your bank's overdraft policy, which you can find in your account agreement or by calling customer service.
Once you overdraw, the clock starts. You typically have a few business days to deposit enough money to cover the negative balance and the fee. If you don't, the bank may close your account and report you to ChexSystems, a checking account history database that other banks use to decide whether to open accounts for you.
Key Takeaways
- Overdraft fees range from $25 to $35 per transaction at most banks, and some charge an additional daily fee if your account stays negative.
- Your bank decides which transactions can overdraw your account—debit purchases, checks, and transfers may be allowed to go negative, but ATM withdrawals often are not.
- You usually have three to five business days to deposit money and cover both the negative balance and the overdraft fee before the bank takes further action.
- Repeated overdrafts can result in account closure and a report to ChexSystems, which makes it harder to open a checking account elsewhere.
How banks decide which transactions can overdraw you
Banks use two different systems to process transactions: real-time and batch. Real-time transactions—like debit card swipes at a store—post to your account when ready. Batch transactions—like checks and ACH transfers—may not post for one or two business days. This timing difference is why you can overdraw on a check you wrote three days ago, even though you deposited money yesterday.
Most banks allow debit card transactions to overdraw your account if you have opted into their overdraft service. This is usually the default setting, though you can turn it off. If you turn it off, the transaction will be declined instead. Checks and ACH transfers typically overdraw you regardless of your overdraft setting, because the bank processes them after they clear.
ATM withdrawals are the exception. Many banks will not allow an ATM withdrawal if it would overdraw your account—the machine straightforward declines the request. This is a built-in protection, not a choice you make.
Overdraft fees and how they stack up
A single overdraft fee is usually $25 to $35. Some banks charge $39 or more. If multiple transactions post while your account is negative, you may face multiple fees—one per transaction. A day of heavy spending can result in three or four overdraft fees totaling $75 to $140.
Beyond the per-transaction fee, some banks charge a daily fee if your account stays negative for more than one business day. This fee is typically $5 to $10 per day and continues until you bring your balance positive. A $50 overdraft that takes five days to fix can cost you $75 to $100 in fees alone.
Interest does not explore to overdrafts the way it does to credit cards. You pay fees, not interest. But the fees add up quickly, especially if you overdraw multiple times in a month.
How long you have to fix an overdraft
Most banks give you three to five business days to deposit money and cover the negative balance plus fees. During this window, the bank will not close your account or report you to ChexSystems. The exact timeframe depends on your bank's policy—check your account agreement or call to confirm.
If you deposit money but only cover part of the negative balance, you still owe the rest. The bank will not automatically close your account, but you remain in overdraft until the full amount (including fees) is covered. If you ignore the overdraft beyond the grace period, the bank may close your account without warning.
Some banks offer overdraft protection, which links your checking account to a savings account or credit line. If you overdraw, the bank automatically transfers money from the linked account to cover it. This prevents the overdraft fee, but you may pay a transfer fee instead—usually $1 to $3, which is cheaper than an overdraft fee.
What happens if you don't pay back the overdraft
If you don't deposit money within the grace period, the bank will close your account. They will keep any money you deposit to cover the overdraft and fees, then send you a letter saying the account is closed. You will no longer be able to use the debit card or write checks on that account.
The bank will also report the closed account to ChexSystems. This report stays on your record for five years. When you try to open a checking account at another bank, they will see this report and may deny you. Some banks will still open an account for you, but they may require a deposit or charge higher fees.
If the overdraft amount is large enough, the bank may pursue collection. This is rare for small overdrafts (under $100), but possible for larger ones. A collection agency may contact you, and the debt may appear on your credit report.
How to avoid overdrafts
The simplest method is to turn off overdraft protection for debit card transactions. Call your bank or log into your account online and opt out of overdraft coverage. After you do this, debit card transactions will be declined if you don't have enough money. You will not face a fee, and you will know when ready that you are out of funds.
Checks and ACH transfers cannot be turned off the same way, because the bank processes them after they clear. To avoid overdrafting on these, keep a buffer in your account—money you do not spend. A $200 to $300 buffer catches most unexpected charges or timing delays.
Set up account alerts through your bank's app or website. Most banks let you set a low-balance alert that notifies you when your account drops below a certain amount. This gives you time to deposit money before you overdraw. Some banks also offer a text or email alert when a transaction is about to overdraw you.
Recovering from a closed account due to overdraft
If your account was closed, contact the bank and ask what you owe. Pay the full amount—the negative balance plus all fees. Ask the bank in writing to remove the ChexSystems report or to note that the debt has been paid. Some banks will do this; others will not. Either way, get written confirmation that the debt is settled.
After you pay, wait at least 30 days before trying to open a new account elsewhere. This gives the ChexSystems report time to update. When you explore for a new account, be honest about the closed account if asked. Many banks will open an account for you if the overdraft is paid and some time has passed.
Look for banks that offer second-chance checking accounts. These accounts are designed for people with ChexSystems reports or closed accounts. They usually have lower fees and smaller minimum balances than standard accounts. Credit unions sometimes offer these accounts as well.
Frequently Asked Questions
Can a bank charge me an overdraft fee if I didn't authorize overdraft protection?
It depends on the transaction type. Debit card transactions require you to opt into overdraft coverage—if you have not, the transaction will be declined and you will not be charged a fee. Checks and ACH transfers can overdraw you without your permission, because the bank processes them after they clear. You cannot opt out of overdraft fees for these.
Will an overdraft hurt my credit score?
A single overdraft will not appear on your credit report and will not hurt your score. But if the overdraft goes unpaid and the bank closes your account, the bank may report it to a collection agency. A collection account will damage your credit score and stay on your report for seven years.
What is the difference between an overdraft and a returned check?
An overdraft means the bank covered the transaction and you owe them the money plus a fee. A returned check means the bank declined the check and sent it back to the person who wrote it. Whether your check is returned or overdrafted depends on your bank's policy and whether you have overdraft coverage turned on.
Can I get an overdraft fee refunded?
Some banks will refund one overdraft fee if you ask, especially if you have a good account history. Call your bank and explain the situation. They may reverse the fee as a courtesy. If you have been charged multiple fees, ask the bank to review your account. Some banks have policies that limit how many fees they will charge in a single day.
How long does a ChexSystems report stay on my record?
A closed account due to overdraft stays on your ChexSystems report for five years. After five years, it is automatically removed. You can request a copy of your ChexSystems report at any time to see what banks will see when you explore for a new account.