An overdraft happens when you spend more money than you have in your account, and your bank covers the difference
When you write a check, use your debit card, or set up an automatic payment for more than your balance, your bank can either reject the transaction or let it go through and put your account into negative numbers. If the bank lets it go through, that negative balance is an overdraft. You now owe the bank money, and they charge you a fee for the service—usually between $25 and $35 per overdraft, though the amount varies by bank.
Not every bank handles overdrafts the same way. Some banks automatically cover overdrafts on debit card purchases and checks. Others require you to opt in to overdraft protection first. A few banks simply decline the transaction and charge you a non-sufficient funds (NSF) fee instead. Understanding your bank's specific overdraft policy matters because the fees add up quickly if you overdraft multiple times in one day.
Key Takeaways
- An overdraft occurs when your bank allows a transaction to go through even though your account balance is too low, putting you into negative numbers.
- Banks charge overdraft fees—typically $25 to $35 per transaction—each time you overdraft, and multiple overdrafts in one day can result in multiple fees.
- You can opt out of overdraft protection on debit cards and ATM withdrawals, which forces your bank to decline the transaction instead of charging a fee.
- Overdraft protection linked to a savings account or credit line transfers money automatically to cover the shortfall, often with a smaller fee or no fee at all.
How overdraft fees work and when they're charged
When you overdraft, your bank charges a fee for covering the difference. This fee is separate from the negative balance itself—you owe both the money you spent and the fee. If you overdraft by $5 and the fee is $35, you now owe $40.
Banks process transactions in different orders, which can trigger multiple overdraft fees in a single day. If you make several small purchases and your balance is low, the bank might process the largest transaction first, then the smaller ones. Each one that pushes you further into negative territory can trigger its own fee. Some banks cap the number of overdraft fees per day (often at three or four), but not all do. Check your account agreement or call your bank to find out their specific limit.
The fee is charged immediately or within one to two business days, depending on your bank. The negative balance itself must be repaid whenever you deposit money into the account—the bank will take the deposit to cover the overdraft before you can use any of it.
Opting out of overdraft protection on debit cards and ATM withdrawals
Federal law gives you the right to opt out of overdraft protection for debit card purchases and ATM withdrawals. If you opt out, your bank will simply decline the transaction instead of charging you an overdraft fee. This is different from checks and automatic bill payments, which banks can still cover even if you opt out.
To opt out, contact your bank directly—by phone, in person, or through your online banking portal. The process takes minutes. Once you opt out, declined transactions will show up on your statement, and the merchant will see the decline at the point of sale. This protects you from surprise fees, but it also means your card may be rejected when you're trying to make a purchase.
You can opt back in at any time if you change your mind. Some people opt out to avoid fees, while others opt in because they prefer the certainty of a transaction going through, even if it costs them a fee. The choice depends on your spending habits and how often you run low on funds.
Overdraft protection linked to savings accounts or credit lines
Instead of paying overdraft fees, you can set up overdraft protection that automatically transfers money from another account to cover the shortfall. This is usually linked to a savings account you hold at the same bank, or sometimes to a credit line or money market account.
When you overdraft, the bank transfers just enough money from your linked account to cover the transaction. You may pay a small transfer fee (often $0 to $10) or no fee at all, depending on your bank and account type. This is usually much cheaper than an overdraft fee. The downside is that you need to have money in the linked account—if both accounts are empty, the transfer can't happen and you'll overdraft anyway.
To set up overdraft protection, log into your online banking account or call your bank. You'll need to specify which account to link and confirm that you want transfers to happen automatically. Some banks offer this as a standard feature for certain account types; others charge a monthly fee to enable it.
What happens if you don't repay an overdraft
If you leave your account in overdraft for too long without depositing money to cover it, your bank will eventually close the account and report you to a checking account verification system called ChexSystems. This report stays on file for five years and makes it difficult to open a new checking account at most banks.
Your bank may also send your debt to a collection agency if the overdraft is large enough or has been unpaid for several months. Once in collections, the debt can appear on your credit report and affect your credit score. Collection agencies can pursue legal action to recover the money, though this is rare for small overdraft amounts.
The timeline varies by bank. Some banks close accounts after 60 days of overdraft; others wait longer. Contact your bank immediately if you can't cover an overdraft—many will work with you on a payment plan rather than closing the account outright.
Overdraft vs. non-sufficient funds (NSF) fees
An overdraft fee is charged when your bank covers a transaction that exceeds your balance. An NSF fee is charged when your bank declines a transaction because you don't have enough money. The outcome is different, but the fee amount is usually the same—$25 to $35.
Which one you pay depends on your bank's policy and whether you've opted into overdraft protection. If you opt out of overdraft protection, you'll pay NSF fees instead of overdraft fees. If you opt in, you'll pay overdraft fees. Some transactions (like checks and automatic bill payments) may still trigger overdraft fees even if you've opted out of debit card overdraft protection.
From a practical standpoint, an NSF fee is often preferable because it means the transaction was declined and you didn't spend money you didn't have. An overdraft fee means you spent the money and now owe it back plus the fee. However, a declined transaction can also be embarrassing or inconvenient—for example, if your card is declined at a store or a bill payment fails.
How to avoid overdrafts
The most straightforward way to avoid overdrafts is to keep a buffer in your checking account—money you don't spend and treat as a cushion. Even $100 or $200 can prevent most accidental overdrafts. Review your account balance before making large purchases or setting up automatic payments.
Set up account alerts through your bank's app or website. Most banks let you receive notifications when your balance drops below a certain amount (for example, $50 or $100). These alerts give you time to deposit money or cancel a pending transaction before you overdraft.
Track your spending carefully if you use multiple payment methods—debit card, checks, and automatic bill payments all draw from the same account. Write down pending transactions that haven't cleared yet, because they'll reduce your available balance even if they don't show up in your current balance yet. Some banks show both your current balance and your available balance for this reason.
Frequently Asked Questions
Can my bank charge me multiple overdraft fees in one day?
Yes. If you make several transactions that push your account into negative territory, each one can trigger its own overdraft fee. Some banks cap the number of overdraft fees per day (often at three or four), but others do not. Check your account agreement or contact your bank to find out their limit.
What's the difference between opting out of overdraft and having overdraft protection?
Opting out means your bank will decline debit card and ATM transactions if you don't have enough money, with no fee. Overdraft protection means your bank automatically transfers money from a linked account to cover the shortfall, usually for a small fee or no fee. They serve opposite purposes.
If I overdraft, do I have to pay the fee even if I deposit money the next day?
Yes. The overdraft fee is charged when the transaction goes through, not based on how long you stay in overdraft. Depositing money the next day covers the negative balance but does not reverse the fee. You owe both the money and the fee.
Will an overdraft hurt my credit score?
A single overdraft does not directly appear on your credit report. However, if the overdraft goes unpaid for several months and is sent to a collection agency, that collection account will appear on your credit report and lower your score.
Can I dispute an overdraft fee?
Yes. Contact your bank and explain the situation. Banks sometimes reverse one or two overdraft fees as a courtesy, especially if you have a good account history or if the overdraft was caused by a bank error. There is no may provide, but it is worth asking.