An overdraft fee can be triggered when a transaction, withdrawal or transfer causes your account balance to go negative. An overdraft fee could also be charged if your account is already negative when a transaction is debited.

Overdraft fees can be costly, however some banks don’t charge them. So you may have options.

Key takeaways

  • Overdraft fees can occur when your account has a negative balance due to a debit.
  • Overdraft fees can be costly, but some banks have eliminated them or cut them.
  • It's important to be aware of your account balance. A bank's app can help, but the app won't indicate if you have an outstanding check you wrote or a debit card transaction that hasn't yet cleared.

What is an overdraft fee?

An overdraft fee is what a bank charges you when you withdraw more money from your account than what you have in it.

When someone’s account is overdrawn, the bank temporarily lends money to cover the total expense. The consumer is responsible for paying back both the overdrawn amount and the overdraft fee, which can sometimes be even more than the original amount charged.

Overdraft fees can be a significant and unnecessary expense, particularly if you have to pay them often. However, there are easy actions you can take to avoid them and ways you can negotiate to get them waived.

Over the past couple of years, many banks have eliminated or curtailed their overdraft fees in response to heightened pressure from federal regulators and consumer advocates to curb overdraft fees, which averaged more than $26.61 per instance, according to Bankrate’s most recent checking account and ATM fee survey.

Overdraft fee: an example

If you’re covered by your bank’s automatic overdraft service, the bank may cover the charge and it’ll still get paid. Your account balance will dip below zero and you’ll have a negative balance representing the amount you now owe to the bank.

Suppose, for example, you have $50 in your account, but you need $75 to pay for an immediate expense, such as a car repair. You’re $25 short, but the bank loans you that $25 and the payment clears. Now, let’s say the bank charges a $30 overdraft fee. That $30 fee, plus the $25 overdraft, would leave you with an account balance of -$55.

How much an overdraft fee costs

Overdraft fees are down to a 19-year low, averaging $26.61 according to  Bankrate’s 2023 checking account and ATM fee study. That can add up to a significant amount if you frequently overdraft your account, since they can be as high as $38 according to that Bankrate study.

Those who are more financially disadvantaged are more vulnerable to incurring overdraft fees. A vast majority of overdrafts (70 percent) are charged to consumers with low average account balances, between $237 and $439 on average, according to the Consumer Financial Protection Bureau (CFPB).

The exact fee charged for an overdraft varies per bank, but here are the fees of some popular financial institutions:

Financial institution Overdraft fee
Wells Fargo $35
Bank of America $10
Chase $34
USAA $29
Capital One $0
Ally Bank $0

How to avoid overdraft fees

Despite their inconvenience, overdraft fees are pretty easy to avoid provided you take some basic precautions.

1. Opt out of automatic overdrafts

While overdrafts are meant to help you avoid embarrassing and inconvenient unpaid payments, you don’t have to accept the service. When you open a new account, part of the paperwork you fill out addresses whether you want to take advantage of this service.

If you opt out of overdraft coverage, your bank won’t cover you if you overdraw your account and will return any payments that you can’t make as unpaid — but you won’t be charged the overdraft fee.

2. Use an account that doesn’t charge you

Capital One, Ally Bank and Alliant Credit Union are just a few of the financial institutions that stopped charging overdraft fees on their accounts. You can always consider switching to a new bank that doesn’t have overdraft fees (or has cut them) to save more money in the long run.

3. Sign up for bank alerts

A simple way to help yourself avoid unexpected overdrafts and save fees is to set up a bank alert to notify you when your account balance falls below a certain amount.

For example, you could set up automatic notifications any time your account balance drops to $250; then you’ll know to be careful with spending no more than that balance until you’ve deposited additional money into the account.

4. Overdraft protection

It may sound similar to automatic overdrafts, but overdraft protection is different in that your bank covers any overdraft on your behalf by automatically loaning you the money and making the payment. With overdraft protection, the bank will transfer money from another linked account to cover an overdrawn amount.

Note that the linked account generally has to be with the same institution. Some banks, however, will still charge a fee for using overdraft protection.

5. Keep a cushion balance

Try keeping a little extra money in your account to cover those forgotten or unexpected charges.

“One mistake consumers often 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 keep a cushion in your checking account above and beyond what you normally spend each month.”

How to get banks to waive an overdraft fee

If you are charged an overdraft fee, that doesn’t always mean you’re stuck paying it. It doesn’t hurt to negotiate to try to have the fee reimbursed. Here are a couple of steps you can try.

Call the bank

There’s no guarantee it’ll work, but you can always call the bank and politely ask the financial institution to remove the charge from your account. “If it’s your first offense, your bank will often work with you,” says Chris Abrams, founder of Abrams Insurance Solutions.

Your odds of success will go up if you infrequently overdraw your account, remain polite and are a good bank customer. Don’t expect an easy yes, though. Be prepared to explain why the bank should waive the fee for you.

Try an app

You can also use an app that will help negotiate overdraft fee refunds for you. Cushion, for example, automatically monitors your bank accounts and negotiates with the bank to pursue a refund if you’re charged an overdraft fee. Just know that this process can take up to 90 days.

Bottom line

Overdraft fees can occur when a transaction gives you a negative balance – or you already have a negative balance. But it’s possible to avoid these fees at certain banks, whether you simply opt out of automatic overdrafts, use an account that doesn’t charge you an overdraft fee, or sign up for overdraft alerts. It also helps to keep an extra amount of cash in your account to cushion you from an unexpected expense that could trigger an overdraft.

— Bankrate’s Matthew Goldberg and René Bennett contributed to an update of this story.