When you spend more money than you have in your checking account, you risk paying overdraft fees. But overdraft charges are optional. If you occasionally (or frequently) spend more than you have, see how to reduce the impacts of overdrawing your account.
Banks often charge $25 to $35 for overdrafts and insufficient funds fees. While some banks charge less ($10 or so), the Consumer Financial Protection Bureau reports that fees are typically around $34 per item. That adds up—especially if you pay several fees on the same day.
There are three ways to avoid paying overdraft charges:
- Opt out of overdraft protection altogether.
- Select a bank that does not charge overdraft fees (we’ve listed several below).
- Choose the right type of overdraft protection to minimize costs.
Opt Out of Overdrafts
You don’t have to pay overdraft charges. In the past, banks automatically signed you up for overdraft protection—and the stiff fees that come with it. But in 2010, changes to federal laws and regulations required banks to get your permission before signing you up for overdraft coverage. If you’re paying overdraft fees, stopping them is as easy as asking your bank to turn off overdraft protection for your accounts.
If you opt out of overdraft protection, you won’t be able to spend from your account once you run out of money. That may be an inconvenience (or not, if you have other ways to spend), but it reduces the chances of paying steep fees. That said, it is still possible to pay overdraft charges on some transactions—even if you opt out. As a result, it’s critical to manage your accounts no matter what you choose.
Banks That Don’t Charge Overdraft Fees
Some banks simply don’t charge overdraft fees. Instead, they may:
- Not allow you to overdraw your account
- Provide fee-free options for covering overdrafts
Banks that help you dodge overdraft charges include:
- Simple is an online bank that provides payment and budgeting tools with no monthly fees. Simple will typically decline transactions if you run out of money in your account. In spring 2021, accounts with Simple will transition to administration by BBVA USA, which charges $38 for overdrafts, although it offers a variety of overdraft protection options.
- Capital One 360 checking accounts allow you to transfer funds from your savings account to your checking account to cover overdrafts, and there is no charge to use that service. You can also choose to use an overdraft line of credit (see below), or replace the amount within one business day to avoid a fee. Otherwise, you pay $35 per overdraft, but you can opt out of overdraft services if you like.
- Discover does not have overdraft fees.
- Charles Schwab Bank allows you to transfer funds from a linked Schwab account at no charge. But it’s possible for overdrafts to cause a margin debt if you have margin enabled on a linked brokerage account. Using margin can be especially risky, so monitor your accounts carefully.
- Chime does not charge overdraft fees. If you attempt to spend more than you have available, the bank will cover the transaction up to $100 for eligible accounts and subtract the amount from your next deposit.
In comparison, some of the nation’s largest banks have less-friendly overdraft policies:
Bank of America
- Overdraft fee: $35 (maximum of four per day)
- Overdraft protection transfer: $12
- Bank of America does not charge overdraft fees if you’re overdrawn by $1 or less.
- Overdraft fee: $34 (maximum of three per day)
- Overdraft protection transfer: No charge
- Chase does not charge overdraft fees if your account balance goes negative by $5 or less.
- Overdraft fee: $35 (maximum of three per day)
- Overdraft protection transfer: $12.50
Wells Fargo offers “Overdraft Rewind,” which can remove previous-day overdraft charges if you get direct deposit on the next business day after overdrawing your account. If you use overdraft protection with a credit card cash advance, you risk paying a cash advance fee, as well as high cash advance interest rates.
Types of Overdraft Protection
If you choose to opt in to overdraft protection, get familiar with the choices available to help you minimize costs.
- Standard overdraft treatment: By default, banks typically charge a fee between $10 and $35 for each overdraft item. If you pay those fees more than once every few years, it’s best to either opt out, switch banks, or use a different overdraft option.
- Overdraft protection: When banks and credit unions allow you to transfer funds from another account, they typically call the service something like "overdraft protection." That service should be less expensive than standard overdraft fees, and in some cases, it’s free.
- Overdraft line of credit: Some banks lend you money when you overdraw your account through an overdraft line of credit. That option is typically less costly than standard overdraft charges because there’s no per-transaction fee. You pay interest on what is usually a small amount, and you pay the debt off quickly, so the interest charges should be minimal.