You can choose to have your bank cover the balances of any purchases you can’t afford — but it’ll come with hefty fees. Find out about overdraft fees and tips you can use to avoid them.
What is an overdraft?
An overdraft fee is charged by the bank when you withdraw too much money and your account balance dips below zero. It’s essentially a short-term loan from the bank to cover the cost of the purchase.
For example, if you had $5 in your account and you spend $20 on a debit card purchase, your account would be overdrawn by $15.
Types of overdraft fees
All overdraft fees are not created equal. Here’s how to sort them out:
What it’s for
When your bank covers the difference for insufficient funds.
When your bank declines a transaction or rejects a check due to insufficient funds.
$10/day – though some banks won’t charge for this.
When your bank automatically transfers funds from a linked account to cover a transaction you’ve charged.
When you leave a negative balance in your account for 5 to 7 days in a row, your bank may charge this on top of the fees you already owe.
Tips for avoiding overdrafts
To keep your finances healthy, here are four ways you can avoid an overdraft fee:
Check your balance. Overdraft fees can add up quickly, so stay up-to-date with your finances by checking your balance, setting up push notifications on your banking app when your balance falls below a certain threshold or using an app like Cleo to keep an eye on your balance.
Use ATMs with caution. Certain machines will let you withdraw money you don’t have, leading to hefty overdraft fees.
Be aware of pending balances. Account balances displayed on ATMs and online may not always be correct. Recent purchases can take time to show up, so factor in any recent pending purchases when deciding what you can spend.
Take stock of your spending habits. If you’ve had to deal with several overdrafts, it might be time to sit down and write up a new budget — and practice sticking to it.
Can my bank always charge an overdraft fee?
Your bank can’t legally charge you a fee for point-of-sale purchase or ATM withdrawal overdrafts unless you opted in to overdraft coverage, but they can charge you for checks and automatic bill payments either way.
Can overdraft fees affect my credit history?
No, overdrafting on your bank account should not affect your credit rating. However, if you were to apply for a loan with the same bank in the future, any overdrafts would be displayed in your account records and your bank may query you as to why they occurred.
Compare overdraft-free accounts
Use the table to compare overdraft-free accounts and other common charges from major banks. If more than one account catches your eye, click the “Compare” box next to each one for a unique side-by-side comparison.
Keeping track of your finances and setting up overdraft protection with your bank can help protect you from hefty fees. But if your budget is tight and you’ll likely need overdraft at some point, compare checking accounts and use a bank that offers low fees.
Frequently asked questions
No, your bank has the right to decline any transaction you can’t pay for.
Yes, if the deposit isn’t available yet, your account can be overdrawn and your bank can charge a fee.
Sometimes, but it’s up your bank to decide — they’re not obligated to waive any fees. If you have an overdraft fee you can’t afford, go to your local bank branch, call or message online to ask if it can be waived.
Amy Stoltenberg is a staff writer covering all things travel, shopping and lifestyle. After earning a BA at Savannah College of Art and Design, she worked as technical designer in corporate fashion before opting for a career with unlimited travel time. When her laptop's closed, you can find her wandering around Los Angeles looking for hole-in-the-wall eateries and plotting her way to all 50 states (she's currently at 28).
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