Your bank covers the transaction, charges you a fee, and your account goes negative
When you overdraft your checking account, your bank pays the transaction that would have failed. Your account balance drops below zero. Within one to three business days, the bank charges you an overdraft fee—usually between $25 and $35 per transaction, though some banks charge more. You now owe the bank both the amount you overspent and the fee itself.
The transaction goes through because most banks have overdraft protection turned on by default. This means they cover checks, debit card purchases, and automatic bill payments even when you do not have the money. ATM withdrawals and transfers between your own accounts typically cannot overdraft—those are usually declined instead.
Your account stays negative until you deposit enough money to cover both the overdraft amount and all the fees that have piled up. If you do not deposit money quickly, additional fees can follow: some banks charge a daily fee for each day your account remains negative, ranging from $5 to $15 per day. A single overdraft can cost you $50 to $100 or more if it takes a week to fix.
Key Takeaways
- Your bank covers overdrafted transactions automatically, but charges a fee of $25 to $35 (or more) for each one.
- Multiple transactions can overdraft your account on the same day, and you may be charged a separate fee for each one.
- Some banks charge additional daily fees while your account is negative, adding up quickly if you do not deposit money within a few days.
- You can turn off overdraft protection for debit card purchases and ATM withdrawals, which will decline those transactions instead of overdrafting.
- If you cannot pay back the overdraft within a reasonable time, your bank may close your account and report you to ChexSystems, making it harder to open accounts elsewhere.
How multiple overdrafts happen on the same day
Banks do not process transactions in the order you made them. They process them in an order that maximizes overdraft fees—usually largest transactions first, then smallest. This is called reordering, and it is legal.
Say you have $100 in your account. You buy coffee for $5, then gas for $40, then groceries for $80. If the bank processes them in the order you made them, you overdraft once (on groceries). But if the bank reorders them largest-first, it processes the $80 first (overdraft, $35 fee), then the $40 (overdraft, $35 fee), then the $5 (overdraft, $35 fee). You now owe $165 in fees instead of $35, all from the same day's spending.
You cannot stop reordering, but you can see which banks do it. Some banks process transactions in the order received instead. Check your bank's overdraft policy before you open an account, or call and ask directly.
What happens if you do not pay back the overdraft
If your account stays negative for more than a few weeks, your bank will close it. Before they do, they will try to collect the money through letters and phone calls. Once the account is closed, the bank may sell the debt to a collection agency, which will contact you for payment.
Your bank will also report the closed account to ChexSystems, a database that tracks banking problems. When you try to open a new checking account anywhere else, the new bank checks ChexSystems. A report there makes approval much harder. Some banks will reject you outright. Others will approve you only for a basic account with no overdraft protection and higher fees.
The debt itself does not disappear. If you do not pay, the collection agency can sue you, garnish your wages, or place a lien on your property, depending on your state's laws. The debt can stay on your record for up to seven years.
How to turn off overdraft protection
You can disable overdraft protection for debit card purchases and ATM withdrawals. When you do, those transactions will simply be declined instead of overdrafting. Checks and automatic bill payments usually cannot be turned off this way—your bank will still cover those to avoid bouncing them.
To turn off overdraft protection, log into your online banking account or call your bank's customer service line. The option is usually in settings under "overdraft protection" or "overdraft coverage." Some banks call it "opt-out" or "decline coverage." You may need to confirm the change in writing or through a form, depending on the bank.
Turning it off does not hurt your credit score. A declined transaction is not reported to credit bureaus. It simply means the purchase fails at the register or ATM, and you can try again once you have money in your account.
Recovering from an overdraft quickly
The fastest way out is to deposit money as soon as possible. Even a partial deposit stops the daily fees from continuing to stack up. If you deposit $50 and you owe $85 in overdraft and fees, you still owe $35, but you stop accruing new daily charges.
If you cannot deposit the full amount right away, contact your bank and explain the situation. Some banks will waive one overdraft fee per year if you have been a customer in good standing. Others will reverse a fee if you ask within a few days of being charged. The worst they can say is no, and asking takes five minutes on the phone.
If your bank refuses to waive the fee and you believe it was charged unfairly, you can file a complaint with the Consumer Financial Protection Bureau (CFPB). The CFPB investigates complaints about overdraft practices and can pressure banks to refund fees in some cases. Filing does not cost anything and does not affect your account.
The difference between overdraft and non-sufficient funds
Overdraft means your bank covered a transaction and your account went negative. Non-sufficient funds (NSF) means a transaction was declined because you did not have enough money. The terms are sometimes used interchangeably, but they result in different fees.
An overdraft fee is charged when the bank covers you. An NSF fee is charged when a check or automatic payment bounces because there was not enough money. NSF fees are usually $25 to $35, the same as overdraft fees, but they are triggered by different events. Some banks charge both: an NSF fee because the transaction failed, plus an overdraft fee if they then covered it anyway.
If you turn off overdraft protection for debit cards and ATM withdrawals, those transactions will be declined and you will not be charged an overdraft fee. Checks and bill payments may still overdraft your account if your bank covers them.
How overdrafts affect your credit score
An overdraft itself does not appear on your credit report and does not directly damage your credit score. Credit bureaus only see information that banks and lenders report to them, and most banks do not report overdrafts.
However, if your overdraft goes unpaid for months and your bank closes your account and sends it to collections, the collection account will appear on your credit report and will hurt your score significantly. A collection account can lower your score by 50 to 100 points or more, depending on your current score.
Additionally, if you overdraft checks and they bounce, some banks report this to Early Warning Services, another banking database. This does not affect your credit score directly, but it makes it harder to open new bank accounts, which can affect your ability to get loans later.
Frequently Asked Questions
Can my bank charge me a fee for every overdrafted transaction?
Yes. Each transaction that overdrafts your account can trigger a separate fee. If you overdraft five times in one day, you could be charged five overdraft fees. Some banks cap the number of fees per day (usually three to five), but not all do.
What if I overdraft because of a bank error?
Contact your bank immediately and explain what happened. If the bank made the error—for example, if a deposit did not post when it should have—they will usually reverse the overdraft fee. Bring documentation of the error if you have it, such as a receipt or confirmation number.
Does overdraft protection help or hurt me?
It depends on your habits. If you rarely overdraft, protection prevents embarrassment and keeps checks from bouncing. If you overdraft frequently, it costs you hundreds in fees. Most people benefit from turning it off for debit cards and ATM withdrawals, which are easier to monitor in real time.
How long does it take to recover from an overdraft on my credit?
An overdraft itself does not appear on your credit report. If it goes to collections, the collection account stays on your report for seven years, but its impact on your score decreases over time. After three to four years of no new negative marks, the damage is usually minimal.
Can I dispute an overdraft fee?
Yes. Contact your bank and ask them to review the charge. If you have a good account history, they may waive it. If they refuse, you can file a complaint with the CFPB, which investigates overdraft practices and can sometimes force banks to refund fees.