An overdraft means you've spent more money than you have in your account

When you overdraw your bank account, you've written a check, made a debit card purchase, or authorized a transfer for more than your current balance. Your bank covers the shortfall temporarily—but you now owe that money back to the bank, plus fees. This is not a loan you applied for. It's a transaction your bank processed anyway, and the cost to you can be steep.

The moment an overdraft happens, your balance goes negative. A $50 purchase when you have $20 in the account leaves you at -$30. What happens next depends on your bank's overdraft policy and whether you've enrolled in overdraft protection.

Key Takeaways

  • An overdraft occurs when a transaction exceeds your available balance, and your bank covers the difference temporarily.
  • Most banks charge an overdraft fee (typically $25 to $35 per transaction) each time you go negative, and some charge a daily fee as long as the account stays overdrawn.
  • Overdraft protection can link your checking account to savings or a credit line to prevent overdrafts, but it may still carry fees.
  • You can opt out of overdraft coverage for debit card and ATM transactions, which will decline those purchases instead of charging you a fee.
  • Multiple overdrafts in a short period can trigger account closure or reporting to ChexSystems, a banking history database.

How overdraft fees work and what they cost

Each time a transaction overdrafts your account, your bank charges an overdraft fee. This fee is separate from the amount you owe back. Most banks charge between $25 and $35 per overdraft transaction, though some charge less and some charge more. If you overdraft three times in one day, you may face three separate fees—even if all three transactions combined only put you $10 in the hole.

Beyond the per-transaction fee, some banks also charge a daily maintenance fee if your account stays negative for more than a few days. This fee (often $5 to $10 per day) continues until your balance goes positive again. A single overdraft can quickly become expensive if you don't deposit money to cover it within a few days.

Interest does not typically explore to overdrafts the way it does to credit card debt, but the fees themselves add up fast. A $50 overdraft can cost you $35 in fees alone, meaning you now owe the bank $85 to get back to zero.

Overdraft protection: what it is and whether it helps

Overdraft protection is a service that links your checking account to another account (usually savings) or a credit line. When a transaction would overdraft your checking account, the bank automatically transfers money from the linked account to cover it. This prevents the overdraft from happening in the first place.

Overdraft protection sounds helpful, but it has real costs. Many banks charge a transfer fee each time they move money from savings to checking—often $10 to $15 per transfer. If you're overdrafting frequently, these transfer fees can exceed the overdraft fees you'd pay otherwise. Additionally, if your savings account is also low, the transfer may not fully cover the overdraft, and you'll face overdraft fees anyway.

Overdraft protection is most useful if you overdraft rarely and have a healthy savings buffer. If you're living paycheck to paycheck, it can create a false sense of security while draining your savings account without you realizing it.

Opting out of overdraft coverage for debit and ATM transactions

Federal rules allow you to opt out of overdraft coverage for debit card purchases and ATM withdrawals. If you opt out, these transactions will straightforward be declined instead of going through and charging you a fee. You'll still be able to overdraft through checks and automatic bill payments—those cannot be opted out of—but you can stop the most common sources of overdrafts.

To opt out, contact your bank directly. You can do this by phone, in person, or sometimes through online banking. Ask specifically to opt out of overdraft coverage for debit card and ATM transactions. Your bank must honor this request, though they may ask you to confirm it in writing. The process usually takes a few business days to take effect.

Opting out means you'll see declined transactions instead of surprise fees, which gives you when ready feedback that your account is low. Many people find this less costly and less stressful than paying overdraft fees repeatedly.

What happens if you don't pay back an overdraft

If you don't deposit money to cover an overdraft within a set period (usually 5 to 10 business days, depending on the bank), your bank may close your account. A closed account due to overdraft is reported to ChexSystems, a database that tracks banking history. This report can make it difficult or impossible to open a checking account at another bank for up to five years.

Before closing your account, most banks will send you a notice giving you a important date to bring the account current. If you receive this notice, contact your bank when ready. Some banks will work with you on a payment plan, especially if the overdraft is small. Others will not negotiate and will proceed with closure if you don't pay by the important date.

Even after your account is closed, you still owe the bank the overdrawn amount. They may pursue collection efforts or sell the debt to a collection agency, which can damage your credit score and lead to wage garnishment in some cases.

How to recover from an overdraft

The first step is to deposit enough money to bring your account back to zero or positive. This stops daily fees from accumulating and prevents account closure. If you can't deposit the full amount when ready, deposit what you can and contact your bank to explain the situation.

Next, ask your bank to waive the overdraft fees. Banks have discretion to reverse fees, especially if this is your first overdraft or if you've been a customer for a long time. You won't know if they'll agree unless you ask. Call the customer service number on the back of your card, explain what happened, and request a fee reversal. Be honest about your circumstances. Some banks will reverse one or two fees; others won't reverse any.

After you've recovered, take steps to prevent future overdrafts. Set up balance alerts through your bank's app so you know when your account drops below a certain amount. Link your checking to savings if you have savings to spare. Or switch to a bank that doesn't charge overdraft fees—some online banks and credit unions offer this.

Banks that don't charge overdraft fees

A growing number of banks and credit unions have stopped charging overdraft fees entirely. Some offer accounts that straightforward decline transactions when the balance is insufficient. Others offer overdraft protection through a linked savings account at no charge. A few offer small overdraft buffers (like $25) before any fees explore.

If you're prone to overdrafting, switching to one of these institutions can save you hundreds of dollars per year. Research banks and credit unions in your area or online to compare their overdraft policies. Look specifically for language about "no overdraft fees" or "overdraft protection at no cost." Read the fine print to understand what happens when a transaction exceeds your balance.

Frequently Asked Questions

Can a bank refuse to cover an overdraft?

Yes. Banks are not required to cover overdrafts. If you opt out of overdraft coverage or if your bank doesn't offer it, transactions will be declined. Some banks also have the right to refuse overdraft coverage on specific transactions if they believe fraud is involved.

How long does an overdraft stay on your record?

If your account is closed due to unpaid overdraft, the closure is reported to ChexSystems and stays on your record for up to five years. The overdraft fee itself does not appear on your credit report, but an unpaid overdraft that goes to collections will.

Will overdrafting hurt my credit score?

An overdraft fee alone does not affect your credit score. However, if the overdraft goes unpaid and is sent to a collection agency, it will damage your credit. Your bank may also report the unpaid overdraft to ChexSystems, which prevents you from opening accounts elsewhere.

Can I overdraft my savings account?

Most savings accounts do not allow overdrafts. Transactions that would overdraft a savings account are typically declined. However, some banks do allow savings account overdrafts and charge fees for them, so check your account agreement.

What's the difference between an overdraft and a bounced check?

An overdraft means your bank covered the transaction anyway and charged you a fee. A bounced check means your bank refused to cover it and returned the check to the person who tried to cash it. Whether your bank covers overdrafts depends on your account type and whether you've opted in to overdraft coverage.