When you overdraw, your bank covers the transaction and charges you a fee
An overdraft happens when you try to withdraw or transfer more money than you have in your account. Your bank can choose to cover the transaction anyway — paying the merchant or the person you sent money to — and then charge you a fee for doing so. This fee is separate from the amount you overspent. You now owe the bank both the overdraft amount and the overdraft fee.
Not every bank handles overdrafts the same way. Some banks will decline the transaction and charge nothing. Others will cover it automatically and charge a fee each time. Some let you set up overdraft protection, which links your checking account to a savings account or credit line so the bank pulls money from there instead of charging a fee. The rules depend on your bank and the type of account you have.
The key thing to understand: overdraft fees are not automatic or unavoidable. They happen because of a choice your bank made about how to handle your account. You can change that choice.
Key Takeaways
- When you overdraw, your bank charges a fee (usually $25 to $35 per transaction) on top of the amount you overspent, and you owe both.
- Banks are not required to cover overdrafts — they can decline the transaction instead, which costs you nothing.
- You can ask your bank to turn off overdraft coverage so transactions straightforward decline rather than triggering fees.
- Overdraft fees can pile up quickly if multiple transactions hit your account on the same day, sometimes reaching $100 or more.
- Overdraft protection — linking your checking account to savings or a credit line — lets you avoid fees by borrowing from your own money or a backup source.
How overdraft fees work and what they cost
When your account balance goes negative, your bank charges an overdraft fee. This fee is charged per transaction, not per day. If you overdraw by $50 and your bank charges a $35 fee, you now owe $85. If three transactions overdraw your account on the same day, you may be charged three separate fees — one for each transaction.
Overdraft fees vary by bank. Most banks charge between $25 and $35 per overdraft. Some charge more. A few charge less. The fee is the same whether you overdraw by $5 or $500. This means small overdrafts can be especially expensive — a $10 overdraft with a $35 fee costs you $45 total.
The fees can accumulate quickly. If you have a low balance and several small purchases hit your account in one day, each one can trigger a separate fee. A person who overdrafts three times in a week could pay $75 to $105 in fees alone, on top of paying back the money they overspent.
What happens to your account after you overdraw
After an overdraft, your account balance is negative. You owe the bank money. The bank will expect you to deposit enough to cover both the overdraft amount and the fee. Until you do, your account remains in the red.
While your account is overdrawn, you may not be able to use your debit card or write checks. Some banks will freeze your account or restrict access. You can still receive deposits — paychecks, transfers, or other money coming in — and those deposits go toward paying off the negative balance first.
If you do not deposit money to cover the overdraft within a certain time, the bank may close your account. The timeframe varies — some banks give you a few days, others give you weeks. When an account is closed due to overdraft, the bank reports it to ChexSystems, a checking account history system. This record can make it harder to open a new checking account at other banks for up to five years.
The difference between overdraft coverage and overdraft protection
Overdraft coverage is when your bank automatically covers overdrafts and charges you a fee. This is the default at many banks. You do not have to ask for it — it happens unless you turn it off. Overdraft coverage is convenient if you occasionally overspend, but it is expensive if overdrafts happen often.
Overdraft protection is a service you set up to prevent overdraft fees altogether. The most common type links your checking account to a savings account at the same bank. If you overdraw, the bank automatically transfers money from savings to checking instead of charging a fee. You pay no fee, but you do lose the money from savings. Some banks charge a small transfer fee (usually $1 to $3) instead of the larger overdraft fee.
Another form of overdraft protection is a credit line — a small loan from the bank that you can borrow from if you overdraw. The bank transfers the borrowed amount to your checking account, and you pay it back with interest. This costs less than an overdraft fee if you repay it quickly, but more if you carry the balance for months.
How to turn off overdraft coverage
You can ask your bank to decline transactions instead of covering them. When you do this, your debit card will be declined at the register, or your check will bounce, but you will not be charged an overdraft fee. This is called opting out of overdraft coverage.
To opt out, contact your bank directly — call the number on the back of your card, visit a branch, or log into your online banking. Tell them you want to turn off overdraft coverage for your checking account. Some banks let you do this online in your account settings. The change usually takes effect within one business day.
After you opt out, any transaction that would overdraw your account will straightforward be declined. You will not spend money you do not have, and you will not be charged a fee. The downside is that a declined transaction can be embarrassing at the register, and some merchants may charge you a fee for a bounced check. But for most people, a declined transaction is better than paying $35 for an overdraft.
What to do if you have already been charged overdraft fees
If you have been charged overdraft fees, you can ask your bank to reverse them. Banks do not have to reverse fees, but many will if you ask — especially if this is your first overdraft or if you have been a customer for a long time. Call the bank or visit a branch and explain what happened. Be honest about whether it was an accident or a pattern.
Some banks will reverse one or two fees as a courtesy. Others will reverse fees if you can show that the overdraft was caused by a bank error, such as a delayed deposit or a processing mistake. A few banks have policies that automatically reverse a certain number of fees per year for customers in good standing.
If the bank refuses to reverse the fee, you have limited options. You can file a complaint with the Consumer Financial Protection Bureau (CFPB), a federal agency that oversees banks. The CFPB cannot force a bank to refund fees, but it can investigate if the bank's overdraft practices are unfair or deceptive. You can file a complaint on the CFPB website at consumerfinance.gov.
How to avoid overdrafts in the first place
The simplest way to avoid overdrafts is to keep track of your balance. Check your account before you spend, either through your bank's app, website, or by calling the bank's automated line. Many banks send text or email alerts when your balance drops below a certain amount — you can set these up in your online banking settings.
If you struggle to track spending, consider using a budget or a spending app. Write down every purchase, or use an app that connects to your bank account and shows you what you have spent. Some people keep a small cushion in their account — $50 or $100 — that they do not spend, so they have a buffer if they miscalculate.
Another approach is to use cash or a prepaid card for everyday spending. When the cash or card balance runs out, you cannot spend more. This removes the possibility of overdrafting, though it does not help if you have bills that come out of your checking account automatically.
Frequently Asked Questions
Can a bank charge me an overdraft fee if I did not know I was overdrawn?
Yes. Your bank is not required to notify you before charging an overdraft fee. However, banks must disclose their overdraft policies when you open an account, and you can ask for a summary at any time. If you did not receive clear information about overdraft fees, you may have grounds to dispute the charge.
What is the difference between an overdraft and a bounced check?
An overdraft is when your bank covers a transaction and charges you a fee. A bounced check is when your bank declines to cover it — the check is returned unpaid. With a bounced check, you may be charged a fee by your bank and another fee by the merchant or person who tried to cash the check.
If I overdraw, will it hurt my credit score?
An overdraft alone does not directly hurt your credit score because banks do not report overdrafts to credit bureaus. However, if the overdraft leads to a closed account or sent to collections, that can damage your credit. Staying on top of your balance protects both your bank account and your credit.
Can I overdraw my savings account?
Most banks do not allow overdrafts on savings accounts. Savings accounts have different rules than checking accounts, and overdraft coverage is typically only available on checking. If you try to withdraw more than you have in savings, the transaction will usually be declined.
What happens if I never pay back an overdraft?
If you do not deposit money to cover the overdraft, the bank will eventually close your account and may send the debt to a collection agency. The closed account is reported to ChexSystems, making it difficult to open a checking account elsewhere for several years. The debt itself can be pursued in small claims court.