Your bank will cover the transaction, then charge you a fee
When you try to spend more money than you have in your account, your bank has a choice: it can either decline the transaction or pay it anyway and let your balance go negative. Most banks choose to pay it, which means the transaction goes through, but you now owe the bank money. The bank then charges you an overdraft fee — a penalty for going into the negative.
The fee itself is not small. Overdraft fees typically range from $25 to $35 per transaction, though some banks charge more. If multiple transactions hit your account while it is overdrawn, you can be charged multiple fees in a single day. A $5 coffee purchase that overdrafts your account can cost you $30 or $35 in fees on top of the $5.
The overdraft stays on your account until you deposit enough money to bring your balance back to zero or above. Until then, your account remains negative and the bank may continue to charge additional fees if more transactions process.
Key Takeaways
- Overdraft fees typically cost $25 to $35 per transaction, and multiple transactions in one day can result in multiple fees.
- Your bank will usually pay the transaction and let your balance go negative, rather than declining it outright.
- You owe the bank the full negative amount plus all fees until you deposit money to bring your balance back to zero.
- Some banks offer overdraft protection or allow you to opt out of overdraft coverage to avoid these fees.
- Repeated overdrafts can make it harder to open accounts at other banks in the future.
How overdraft fees add up quickly
The real damage from overdrafts comes from how fast the fees stack. Imagine your account has $50 and you make three purchases: $20, $15, and $25. All three transactions process because your bank covers them. Your balance is now -$10, but you have been charged three overdraft fees — one for each transaction that pushed you below zero. That is $75 to $105 in fees on top of the $10 you actually owe.
Some banks charge what is called a sustained overdraft fee or extended overdraft fee — an additional charge if your account stays negative for several days. This fee can be $5 to $10 per day, which means a week-long overdraft can cost you more in fees than the original overspending.
The worst-case scenario happens when you do not notice the overdraft right away. If your account stays negative and more transactions process — a paycheck deposit that gets reversed, an automatic bill payment, a debit card swipe — each one can trigger another fee. People have reported overdraft fee chains that cost hundreds of dollars from a single mistake.
What happens to your account while it is overdrawn
While your account balance is negative, your bank may restrict what you can do. Some banks will not let you make new transactions until you bring the balance positive. Others will continue to process transactions and charge fees for each one. A few banks will freeze your account entirely if the negative balance is large enough or stays negative too long.
If you do not pay back the overdraft within a certain time frame — usually 30 to 60 days, depending on the bank — the bank may close your account. When an account is closed for overdraft, it goes on your banking history and can make it harder to open a new account elsewhere. Some banks use a system called ChexSystems to share information about closed accounts, and other banks check this record before opening new accounts for you.
The bank may also try to recover the money by taking it from other accounts you have with them, or by sending your debt to a collection agency if the overdraft is large enough and you do not pay it back.
Overdraft protection and opting out
Many banks offer overdraft protection, which is a way to avoid overdraft fees by linking your checking account to another account — usually 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 it. You may be charged a small transfer fee (usually $5 to $10) instead of an overdraft fee, which is cheaper.
You can also ask your bank to turn off overdraft coverage entirely. This means if you try to spend more than you have, the transaction will be declined at the point of sale or ATM. You will not be able to complete the purchase, but you also will not be charged an overdraft fee. This is sometimes called opting out of overdraft. Federal law requires banks to let you opt out if you want to, though you may need to call or visit in person to make the change.
Check with your bank about which option is available to you. Some banks offer overdraft protection automatically; others require you to set it up. If you do not have a linked account to protect with, opting out of overdraft coverage is the safest way to avoid fees.
How to recover from an overdraft
The first step is to deposit money into your account to bring the balance back to zero. Deposit at least the full negative amount plus all the fees you have been charged. If your account was overdrawn by $50 and you were charged $75 in fees, you need to deposit at least $125.
After you deposit the money, check your account to make sure the balance is positive and the fees have been applied. Some banks take a day or two to process deposits, so wait a few days before making new transactions to be sure the money is there.
If you believe the overdraft fees were charged in error — for example, if a transaction posted out of order and should not have triggered a fee — contact your bank and ask them to review it. Banks sometimes reverse one overdraft fee if you have been a customer for a long time and have not overdrawn before, but they are not required to. It is worth asking, especially if the overdraft was caused by a bank error.
Preventing overdrafts in the future
The simplest way to prevent overdrafts is to keep a buffer in your account — money you do not spend, so your balance never actually hits zero. Even $50 or $100 can prevent most accidental overdrafts. If you get paid every two weeks, try to keep at least one week's worth of regular expenses in your account at all times.
Check your balance before making large purchases or paying bills. Many banks offer free balance alerts through their app or website — you can set up a notification that tells you when your balance drops below a certain amount, like $100. This gives you a warning before you overdraft.
If you have overdrafted before, consider switching to a bank that does not charge overdraft fees, or one that offers a lower fee. Some online banks and credit unions have lower overdraft fees or do not charge them at all. You can also ask your current bank if they have a second-chance checking account designed for people with overdraft history — these accounts often have lower fees and smaller initial deposits.
Overdrafts and your credit report
An overdraft by itself does not show up on your credit report or hurt your credit score. However, if the overdraft goes unpaid for a long time and the bank sends it to a collection agency, that collection account will appear on your credit report and will damage your score.
Additionally, if your bank closes your account because of overdraft, that closure is recorded in ChexSystems. While this is not a credit report, it is a banking history that other banks can see. If you try to open a new account and the bank checks ChexSystems, they may deny you or offer you only a restricted account.
The best way to protect your credit and banking history is to pay back any overdraft as soon as you can, before the bank has to take collection action.
Frequently Asked Questions
Can my bank refuse to cover an overdraft?
Yes. Banks are not required to cover overdrafts — they choose to. If you have opted out of overdraft coverage, your bank will decline transactions that would overdraw your account. Some banks also decline overdrafts for customers with a history of repeated overdrafts or very large negative balances.
How long do I have to pay back an overdraft?
This depends on your bank, but most banks expect you to bring your account positive within 30 to 60 days. If you do not, the bank may close your account and send the debt to a collection agency. Check your account agreement or call your bank to find out their specific timeline.
Will an overdraft show up on my credit report?
An overdraft itself does not appear on your credit report. However, if it goes unpaid and is sent to collections, the collection account will show up and hurt your credit score. A closed account due to overdraft will appear in ChexSystems, which other banks can see when you try to open a new account.
Can I get an overdraft fee reversed?
Banks are not required to reverse overdraft fees, but many will reverse one fee if you ask, especially if you have been a good customer or if the overdraft was caused by a bank error. Call your bank and explain the situation. It never hurts to ask, and some banks have policies that allow them to reverse a fee once per year.
What is the difference between overdraft protection and opting out?
Overdraft protection automatically transfers money from another account to cover the overdraft, usually for a small fee. Opting out means transactions will be declined if you do not have enough money, so you will not overdraft at all. Choose overdraft protection if you have a linked savings account; choose to opt out if you want to avoid fees entirely.