An overdraft fee is a charge imposed by a bank when you spend more money than you have in your account, causing a negative balance. These fees are commonly applied to checking accounts and are among the most expensive bank charges.

Key Overdraft Details

• What is an overdraft?

• Occurs when a transaction exceeds your account balance.

• Fee Frequency

• Fees may be charged for every overdraft transaction, depending on the bank.

• Overdraft Protection Options

• Banks often offer overdraft protection services, such as covering the negative balance for a fee.

Ways to Manage or Avoid Overdrafts

• Overdraft Coverage

• Bank pays for overdraft transactions, but fees can range from $30 to $35 per instance.

• Opting Out of Overdraft Coverage

• Transactions exceeding your balance are declined without a fee for one-time debit card or ATM transactions.

• Overdraft Protection Transfers

• Link to another account (e.g., savings) to cover overdrafts for a smaller fee (e.g., $10–$12).

• Overdraft Line of Credit

• A loan from your bank for overdrafts; interest is charged on borrowed amounts.

• Grace Periods

• Some banks allow fee-free overdrafts if the account is brought back to positive within a set timeframe.

Tips to Avoid Overdraft Fees

• Opt Out: Prevent overdrafts by declining overdraft coverage.
• Monitor Balances: Set up low-balance alerts.
• Use Overdraft Transfers: Link accounts to automatically cover shortfalls.
• Prepaid Debit Cards: Ensure transactions can’t exceed your available balance.
• Negotiate Fees: Call your bank to reverse occasional overdraft fees.
• Switch Banks: Some banks have no-fee policies or better overdraft options.

Glossary of Overdraft Terms

• ChexSystems

• Tracks and provides reports on consumer deposit accounts. Negative marks, such as unpaid overdraft fees, remain for up to five years and may prevent account openings at other banks.

• Continuous Negative Balance Fee

• A recurring charge applied if a bank account remains in a negative balance for an extended period.

• Nonsufficient Funds (NSF) Fee

• Also known as a "bounced check fee," charged when a transaction is attempted but the account lacks sufficient funds to cover it.

• Overdraft

• Occurs when a transaction exceeds the available account balance, creating a negative balance.

• Overdraft Coverage

• Services like overdraft protection transfers or lines of credit designed to handle overdrafts. Customers can opt out of such coverage to avoid fees.

• Overdraft Fee

• A charge (typically $30–$35) applied when an overdraft occurs. Multiple fees may be incurred in one day for repeated overdrafts.

• Overdraft Line of Credit

• A pre-approved credit line that covers overdrafts. Interest applies on the borrowed amount, with rates depending on the account holder's credit score.

• Overdraft Protection Transfer

• Allows funds to be automatically transferred from a linked account (e.g., savings) to cover overdrafts. Fees for this service are generally lower than standard overdraft fees.

• Overdraft Protection Transfer Fee

• A charge for transferring funds from a linked account to cover overdrafts. The fee is usually lower than regular overdraft fees.

• Prepaid Debit Card

  • A card loaded with a set amount of money. Transactions beyond the available balance are declined, eliminating the risk of overdrafts.

• Second Chance Checking Account

  • Accounts designed for individuals with poor banking history, such as unpaid overdrafts. These accounts help rebuild banking records until negative marks are removed.

Best Practices

• Overdraft services are useful for emergencies but should be used sparingly.
• If overdrafts are frequent, consider alternative banking solutions like prepaid cards or second-chance checking accounts.

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