How to Avoid Overdraft Fees
Overdraft and non-sufficient funds fees can turn a small mistake into an expensive one. Here's how overdrafts work, your options for opting out, simple ways to never overdraw, and what to do if you're charged a fee.
By Pond.com editors Updated 2 min read
Quick answer
- An overdraft happens when you spend more than you have in your checking account and the bank covers it for a fee.
- Turn on low balance alerts and check your balance before big purchases.
- You can opt out of overdraft coverage for ATM and everyday debit card purchases, so they're declined instead of charged a fee.
- Link a savings account for overdraft protection transfers, which often cost less or nothing.
- Many banks now have no overdraft fees, and many will waive a fee if you ask.
An overdraft fee can turn a $5 coffee into a $40 coffee. The good news is that overdrafts are one of the easiest bank fees to avoid once you know how they work and set up a few safeguards.
This article is general information, not financial advice.
How overdrafts work
If you spend more than is in your checking account, your bank can either:
- Pay it, leaving you with a negative balance and usually an overdraft fee, or
- Decline or return it, sometimes with a non-sufficient funds (NSF) fee.
Some banks charge fees per transaction, so several small purchases on one bad day can add up quickly. Others have a daily limit, a grace period or a small cushion before fees apply. Your account agreement explains your bank's rules.
Ways to avoid them
1. Opt out of debit card overdrafts. By law, banks need your permission (opt-in) before charging overdraft fees on ATM withdrawals and everyday debit card purchases. If you don't opt in, or opt out, those transactions are simply declined when you don't have enough money.
2. Turn on alerts. Set up low balance alerts by text or app notification, and an alert for large transactions.
3. Link savings for overdraft protection. Your bank can automatically move money from a linked savings account to cover a shortfall, often for a small fee or free.
4. Keep a buffer. Treat $100 or so as untouchable, so a forgotten charge doesn't push you below zero.
5. Watch timing. Pending charges, holds from hotels and gas stations, and deposits that haven't cleared can make your balance look higher than it is. Check your available balance, not just your current balance.
6. Track automatic payments. List your bills and their dates, and line them up with your paydays.
7. Choose a bank without overdraft fees. Many banks and credit unions have dropped overdraft and NSF fees entirely. See how to choose a bank.
If you're charged a fee
- Move money in to bring your balance back above zero quickly.
- Ask for a refund. Call or message the bank and ask for a courtesy waiver. It often works.
- Look at what caused it, and set up an alert or opt-out so it doesn't happen again.
Common questions
An overdraft fee is charged when the bank pays a transaction even though you don't have enough money. A non-sufficient funds (NSF) fee is charged when the bank declines or returns the payment. Many banks have dropped NSF fees, but check your account terms.
Often, yes, especially if it's your first or a rare one. Call or message your bank, explain what happened and politely ask for a courtesy refund. Banks frequently waive a fee for customers in good standing.
Repeated overdrafts can add up to large fees, and if a negative balance isn't repaid the bank may close the account and report it to services like ChexSystems, which can make it harder to open a new account.