You may incur an overdraft fee if a transaction, withdrawal, or transfer causes your account to have a negative balance. You may also be charged an overdraft fee if your account is already in a negative balance when a transaction is debited.
While some banks don’t actually charge a fee, overdraft fees can be costly.
What are overdraft fees?
An overdraft fee is a fee that a bank charges you if you withdraw more money than you have in your account.
When someone’s account goes into overdraft, the bank may lend them money to cover the total cost. The customer is responsible for paying that amount back and also pays an overdraft fee, which can sometimes be more than the overdraft amount.
Overdraft fees can be a big, unnecessary expense, especially if you have to pay them frequently. However, there are simple actions you can take to avoid overdraft fees and ways to negotiate to have them waived.
In recent years, many banks have lowered or eliminated overdraft fees in response to increasing pressure from federal regulators and consumer advocacy groups. The average overdraft fee is $27.08, according to Bankrate’s latest Checking Account and ATM Fee Survey.
Overdraft fee example
If your bank allows overdrafts, you may be allowed to withdraw or debit money even if you don’t have enough funds in your account. As a result, you may be charged an overdraft fee. Your balance will fall below zero, creating a negative balance that represents the amount you currently owe the bank.
For example, say you have $50 in your account, but you need $75 for an emergency expense, like a car repair. You’re $25 short, but the bank lends you the $25 and you pay off the debt. Now, let’s say the bank charges you a $30 overdraft fee. The $30 fee, combined with the $25 overdraft, brings your account balance to -$55.
How much are overdraft fees?
Overdraft fees are currently on the rise, averaging $27.08, according to Bankrate’s 2024 Checking Account and ATM Fees Survey. That’s up from $26.61 in 2023 and after two consecutive years of declines. If you frequently overdraft your account, that could add up to a significant amount.
The less economically advantaged people are, the more likely they are to be hit with overdraft fees: According to a 2023 report from the Consumer Financial Protection Bureau (CFPB), 34% of households earning less than $65,000 were hit with an overdraft fee or non-sufficient balance fee (NSF) in the previous year, compared with just 10% of households earning $175,000 or more.
The exact fees charged for overdrafts vary from bank to bank, but some common financial institution fees include:
| Financial Institutions | Overdraft fees |
|---|---|
| Wells Fargo | $35 |
| Bank of America | 10 dollars |
| Tracking | $34 |
| America | $29 |
| Capital One | $0 |
| Ally Bank | $0 |
How to Avoid Overdraft Fees
Though they’re inconvenient, overdraft fees can often be avoided if you take some basic precautions.
1. Turn off automatic overdrafts
Although an overdraft can help you avoid embarrassing situations at the cash register, you don’t have to accept the service. Part of the paperwork you fill out when opening a new account will ask if you want to use the service.
If you opt out of overdraft protection, the bank will not compensate you if your account balance is insufficient and will refund any outstanding amounts you are unable to pay, but will not charge you overdraft fees.
2. Use a free account
Capital One, Ally Bank, and Alliant Credit Union are just a few examples of financial institutions that have stopped collecting overdraft fees on their accounts. You can always consider switching to a new bank that doesn’t charge (or has reduced) overdraft fees to save more money in the long run. Online banks don’t typically charge overdraft fees or NSF fees.
3. Sign up for bank alerts
An easy way to avoid unexpected overdrafts and save on fees is to set up bank account alerts that will notify you when your bank account balance falls below a certain amount.
For example, you can set it to automatically notify you when your account balance drops to $250 so you can be reminded not to spend more than that amount until you have more money in your account.
4. Overdraft Protection
While it may sound similar to an automatic overdraft, overdraft protection is different in that your bank automatically lends you funds and makes payments on your behalf to cover the overdraft. With overdraft protection, your bank transfers funds from another linked account to cover the overdraft amount.
Keep in mind that linked accounts typically must be with the same financial institution, though some banks charge a fee for using overdraft protection.
5. Maintain cushion balance
Make sure you keep a little extra money in your account for any forgotten or unexpected bills.
“One of the most common mistakes consumers make in this area is forgetting about recurring transactions, like subscriptions or automatic monthly payments,” says debt expert Jackie Beck. “One way to avoid overdraft fees is to make sure you have enough money in your checking account on top of your regular monthly expenses.”
How to get your bank to waive overdraft fees
If you’re charged an overdraft fee, you don’t necessarily have to pay it. You can always try to negotiate for a refund of the fee. Here are some steps you can try:
Call the bank
While there’s no guarantee it will work, you can always call your bank and politely ask them to remove the charge from your account. “Banks are often willing to work with you if it’s your first violation,” says Chris Abrams, founder of Abrams Insurance Solutions.
You’ll have a better chance of success if you don’t often have low balances, are polite, and are a good customer of the bank. But don’t expect an easy “yes” — be prepared to explain why the bank should waive the fee.
Try the app
You can also use apps that will let you know about bank fees that you’ve been charged. For example, the Cushion app has a “Bank Fees” section that lists any late payment fees, ATM fees, and overdraft fees that you’ve been charged. You can also contact your bank directly to negotiate a cancellation.
Conclusion
Overdraft fees occur when a transaction causes your balance to go negative. You can avoid these fees with some banks by either opting out of automatic overdrafts, using an account that doesn’t have overdraft fees, or signing up for overdraft alerts. It can also be helpful to keep extra cash in your account to protect against unexpected expenses that could cause an overdraft.
Bankrate Karen Bennett, Matthew Goldberg and Renée Bennett Contributed to updating this story.
