What is an Overdraft Fee? How to Avoid One

Ever had that “uh-oh” moment when you realize you’ve spent a bit more than you have in your checking account? Suddenly, your $3 coffee turns into a $38 coffee, thanks to overdraft fees. ☕💸 Overdraft fees are like a hidden trap waiting for the unprepared. But don’t worry – if you know how they work and how to avoid them, you can dodge these sneaky charges like a financial ninja.

Let’s review overdraft fees and how to keep them far away from your wallet. 🤺💰 Keep reading to see how you can get personalized offers from our trusted partners through MoneyLion!

How does an overdraft fee work?

An overdraft happens when you make a purchase or withdrawal that exceeds the available balance in your checking account. Essentially, it means you’ve spent more money than you have. When your bank allows this transaction to go through anyway, they’ll charge you an overdraft fee for the favor. They say, “We’ll cover this, but it’s going to cost you.”

Let’s say you have $20 in your checking account and try to pay for a $25 meal. Instead of declining your card and leaving you to awkwardly explain yourself to the waiter, the bank approves the transaction but then slaps you with an overdraft fee – often around $35. So, your total cost for that $25 meal becomes $60. Ouch.

• Returned check fees: If you write a check for more than what you have in your account, it can bounce, leading to a NSF (Non-Sufficient Funds) fee and an overdraft fee.
• Overdraft protection: Some people opt-in to overdraft protection, which allows the bank to cover insufficient funds for a fee. This prevents declined transactions, but at a cost.
• Deposited items returned or cash items returned: If you deposit a check that bounces, your bank may return the deposit. If this causes your balance to dip below zero, you could face an overdraft fee.
• Stop payment fee: If you request a stop payment on a check or transaction and it still goes through, it could overdraw your account, resulting in an overdraft fee.

How much do overdraft fees cost?

Most major banks charge overdraft fees, which can vary widely. Overdraft fees can also include daily unpaid fees and maximum daily limits, further complicating the costs.

Here’s a snapshot of what different banks charge for overdraft fees as of October 2024:

Bank	Overdraft fee	Daily unpaid fee penalty	Daily overdraft fee maximum
Chase	$34 each	None	3 times per day
PNC Bank	$36 each	$7 per day after 5 days	4 times per day
Bank of America	$35 each	None	2 times per day
Citibank	$0	None	None. Citi will not approve transactions that would overdraw your account.
U.S. Bank	$36 each	None	4 times per day
Wells Fargo	$35 each	None	3 times per day

How to waive overdraft fees

It’s possible to get your overdraft fees refunded if you take the right steps. You might need a bit of patience and some good negotiating skills, but it’s often worth it. Here’s how:

Call your bank

A simple phone call can go a long way. Contact your bank’s customer service, explain what happened, and ask if they’d consider waiving the fee as a one-time courtesy. Banks tend to be accommodating, especially if it’s your first overdraft. For example, if you accidentally bought a $20 book that put your balance into the red, calling your bank promptly to explain could reverse the fee.

Transfer funds 

Some banks offer a grace period during which you can deposit funds to cover the overdrawn balance and potentially avoid the fee. If you notice that you’ve gone negative, immediately transfer funds from another account. This might involve transferring from a savings account or another checking account. By doing this promptly, the bank may waive the fee since you’ve resolved the issue quickly.

Dispute the charge

If the overdraft fee occurred due to a mistake – like a merchant charging you incorrectly – dispute it with your bank. For instance, if a subscription service accidentally double-charged you and this caused an overdraft, let your bank know. Providing evidence of the mistake (like receipts or screenshots) can help you get that fee refunded.

Try an app

Various financial apps, like Cushion or Chime, can help you negotiate bank fees, including overdraft fees. These apps often use AI to monitor your accounts and automatically dispute fees on your behalf, saving you the trouble of calling the bank yourself.

How to avoid overdraft fees 

Avoiding overdraft fees is the best strategy – prevention is better than cure. Here’s how to steer clear of overdraft charges altogether:

Monitor account balance regularly 

Keeping a close eye on your account balance will help you avoid spending more than you have. For instance, make it a habit to check your balance every morning or before making significant purchases. If you see your balance is low, you’ll know to hold off on nonessential spending.

Set up low-balance alerts 

Setting up low-balance alerts is an easy way to stay informed. Most banks offer this feature through their apps, allowing you to receive notifications when your account balance drops below a certain threshold. For example, if you set your alert for $50, you’ll get a heads-up when your balance hits that level, giving you time to deposit more funds before an overdraft occurs.

Link a savings account for overdraft protection 

Consider linking your savings account to your checking account for overdraft protection. If your checking balance runs low, funds are automatically transferred from savings to cover the shortfall. It might still involve a small transfer fee but is often much cheaper than a full-blown overdraft fee. 

Maintain a cushion in the checking account 

Keeping a buffer in your checking account – say $100 or $200 – can provide a safety net for accidental overspending. Think of it as your “do not touch” money that is only there to prevent overdrafts. For example, if your balance drops below $50, you know it’s time to add funds to avoid dipping into your cushion.

Switch to a bank that offers zero overdraft fees

Some banks, or fintechs, like Chime or Capital One 360, offer accounts with no overdraft fees. These accounts might either automatically decline transactions that would cause an overdraft or offer an alternative like small overdraft coverage with no fees attached. If overdrafts are recurring, switching banks could be the simplest solution.

Use a prepaid debit card

A prepaid debit card is another way to avoid overdraft fees entirely. You can only spend the amount loaded onto the prepaid card, meaning there’s no risk of overdrawing. This approach works well for those who want to stick to a strict budget or are prone to overspending.

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What happens if you don’t pay an overdraft?

The consequences can add up quickly if you don’t pay back an overdraft. The bank may continue to charge you daily fees for the unpaid overdraft balance, eventually closing your account if the negative balance isn’t resolved. This can damage your credit score and make it harder to open new bank accounts in the future. Plus, you may even face debt collection efforts for the amount owed.

The bottom line: stay ahead of overdraft fees

Overdraft fees can be costly, but understanding how they work, how to get them waived, and how to avoid them can save you a lot of money and stress. From calling your bank to dispute fees to setting up overdraft protection or switching to a fee-free account, there are plenty of ways to prevent overdraft headaches. Stay informed, stay proactive, and keep your hard-earned money where it belongs – securely in your account! 💪💰

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