Money & Debt

When you make a transaction that puts your bank account balance below zero, you may be charged an overdraft fee. This can happen, for example, if your paycheck hasn’t been fully cleared before you go grocery shopping, or if you forgot that you have multiple automatic payments authorized on the same day. 

An overdraft fee happens when your bank knows that the transaction will put you below zero but they let the transaction go through anyways and they charge you a fee for it. The overdraft fee amount depends on your bank, but it is usually around $35 per transaction. And you can be charged multiple overdraft fees for multiple transactions. 

Another way the bank might handle this situation is by automatically transferring money from one of your other accounts, maybe a savings account. The bank will also charge you a fee for this situation but it will likely be less than an overdraft fee. 

The Biden Administration has called on banks to stop charging overdraft fees on checking accounts, as well as other fees like processing and termination When something ends fees. Even though some banks have moved towards eliminating overdraft fees altogether, this is not the case for all banks, so it is important to be aware of what your bank’s policies are. 

Do I have to pay the fee?

Yes. Once you are charged an overdraft fee, you will need to add money to your account to cover the negative amount in your account plus the overdraft fee. If you don't bring your balance above zero, the bank may close your account and transfer an unpaid balance to a collection agency. Learn more about dealing with debt.

As long as you bring your bank account above $0 and pay the overdraft fee, it should not affect your credit or credit score. However, if your debt gets sent to a collection agency, it can appear on your credit report and hurt your credit score.

Tips for avoiding overdraft fees

• Download you bank’s mobile app to keep track of your account balance and transactions
• Ask your bank to opt out of overdraft fees. If you do this, the transaction will be automatically denied if there aren’t enough funds to cover the transaction.
• Consider keeping a calendar with the dates of automatic transactions linked to your bank account

Can my bank waive the overdraft fee?

If it is the first time you are getting an overdraft fee, you can try calling the bank to get them to remove the overdraft from your account. You will likely need to explain why you think the bank should work with you in this situation.