How to Avoid Overdraft Fees

An overdraft happens when you spend more than what’s in your checking account and the bank covers the difference. That sounds helpful until you see the fee. Depending on your bank, a small purchase on a low-balance day can come with a fee that’s bigger than the purchase.

The good news is that overdrafts are one of the easiest money problems to prevent. Most of it comes down to a few settings in your banking app and a simple habit of checking your balance.

Here’s what to set up so it doesn’t happen to you, and what to do if it already did.

How overdrafts and overdraft fees work

When a payment comes through and your account doesn’t have enough money, your bank usually does one of three things:

• Pays it and charges an overdraft fee. Your balance goes negative, and you owe the bank the shortfall plus the fee.
• Declines it. The card is declined or the payment bounces. Some banks charge a returned-item (NSF) fee for a bounced check or automatic payment.
• Moves money from another account you linked. This is called overdraft protection. Some banks do it for free and some charge a smaller transfer fee.

Fees and policies vary a lot from bank to bank. Some banks have lowered or dropped overdraft fees in recent years, and many online banks don’t charge them at all. Others still charge a fee for each transaction that overdraws the account, which is how one bad day can turn into several fees. Your bank’s fee schedule, usually linked in the app or on its website, will tell you exactly what yours does.

Check whether you opted in to debit card overdraft coverage

In the US, banks need your permission before they can charge overdraft fees on ATM withdrawals and everyday one-time debit card purchases. That permission is often asked for when you open the account, and it’s easy to say yes without really noticing.

If you opted out, a debit card purchase you can’t cover will usually just be declined. That’s a little awkward at the register, but it costs nothing.

For most people, I’d recommend opting out. You can usually change this in your app under account settings or overdraft settings, or by calling the bank. Keep in mind that the opt-in rule covers debit card and ATM transactions. Checks and automatic payments like a phone bill can still be handled differently, so the next steps matter too.

Link a savings account as a backup

If your bank offers free overdraft protection, link your savings account to your checking account. If checking runs short, the bank pulls from savings instead of charging the full overdraft fee.

Before you turn it on, check two things:

• Whether there’s a transfer fee, and how much it is compared to the regular overdraft fee
• Whether your savings account has enough in it to actually cover a shortfall

This works best as a safety net, not a plan. If the bank is pulling from savings every month, the real fix is in your budget or your bill timing.

Turn on low-balance alerts

Almost every banking app lets you set an alert when your balance drops below a number you choose. Pick a number that covers your next few days of normal spending. For some people that’s $50, and for others it’s $200 or more.

While you’re in the alert settings, turn on these too if your bank offers them:

• An alert for every large purchase or withdrawal
• A heads-up before a scheduled automatic payment
• A notice when a deposit like your paycheck comes in

Alerts only help if you read them, so keep the list short enough that you don’t start ignoring them.

Keep a small buffer in checking

A buffer is a set amount you leave in checking and pretend isn’t there. If your buffer is $100, then a $100 balance means you’re at zero.

Start with whatever you can, even $25 or $50, and build it up over a few paychecks. The buffer covers the small mistakes, like a subscription you forgot or a grocery total that came out higher than you thought.

Line up your bills with your paydays

A lot of overdrafts come from timing, not overspending. Rent is due on the 1st, your paycheck lands on the 3rd, and for two days the math doesn’t work.

To fix that:

1. List every automatic payment and the day it comes out.
2. Compare those dates to when you usually get paid.
3. Ask companies to move due dates that land right before payday. Many credit card companies, phone carriers, and utilities let you choose a due date online.
4. If a bill can’t move, set aside money for it from the paycheck before.

Remember that deposits don’t always show up the second they’re sent. A check you deposit may take a business day or more to be fully available, especially if it’s large. Check your available balance, not just the total, before spending against a new deposit.

What to do if you already overdrafted

It happens, and it’s fixable.

1. Bring the account back above zero as soon as you can. Some banks charge extra fees if the account stays negative for several days, and some give you a grace period to fix it before charging anything.
2. Call or message the bank and ask for the fee to be refunded. Be polite and direct: say it was a mistake, explain what you’ve done to fix it, and ask whether they can waive it. Banks often do this, especially if it doesn’t happen often.
3. Figure out what caused it. Was it timing, a forgotten subscription, or spending that ran higher than planned? Fix that one thing so it doesn’t repeat.

If overdraft fees keep coming up even after these changes, it may be worth looking at a different bank. Many online banks and credit unions have low or no overdraft fees, and our guide to choosing your first bank account walks through what to compare.

Your next step

If you only do one thing today, open your banking app and check your overdraft settings. Opt out of debit card overdraft coverage if you don’t want it, and set a low-balance alert. It takes about five minutes, and it covers most of the situations that lead to a surprise fee.