Your bank covers the transaction, then charges you a fee
When you spend more money than you have in your checking account, your bank has a choice: decline the transaction or pay it anyway. Most banks choose to pay it—that's called overdraft coverage. You get your coffee or your gas, but your account balance goes negative. Within one to three business days, the bank charges you an overdraft fee, usually between $25 and $35 per transaction. If multiple transactions hit while you're overdrawn, you can be charged multiple fees in a single day.
The fee itself makes your balance even more negative. If you don't deposit money to cover both the original overage and the fee, you may trigger another fee. This is how people end up owing $100 or more in fees on a $30 overdraft.
Not all banks handle this the same way. Some decline the transaction instead of covering it—you don't get the money, but you also don't get charged a fee. Others offer overdraft protection, which links your checking account to a savings account or credit line so money transfers automatically when you go negative. The terms and costs vary widely by bank.
Key Takeaways
- When you overdraft, your bank typically covers the transaction and charges you a fee of $25 to $35, making your balance more negative.
- Multiple overdrafts in one day can result in multiple fees stacked on top of each other, sometimes totaling $100 or more.
- You have the right to opt out of overdraft coverage at your bank, which means transactions will be declined instead of covered.
- Overdraft protection programs link your checking account to savings or a credit line, but they cost money and may not prevent all fees.
- The longer your account stays negative, the more fees you may accumulate, and some banks charge daily fees for accounts that remain overdrawn.
How overdraft fees stack up in a single day
Banks process transactions in an order that often maximizes fees. Most banks clear larger transactions before smaller ones, even if you made the smaller purchase first. This means if you spend $5 on coffee, then $200 on groceries, the bank processes the $200 first. Your account goes negative by $200, you get charged a fee, then the $5 transaction goes through and triggers another fee. You end up with two fees instead of one.
Some banks also charge a daily fee if your account stays negative for more than one business day. This fee is separate from the per-transaction overdraft fee. If your account is $50 negative on Monday and you don't deposit money until Friday, you could be charged a daily fee for Tuesday, Wednesday, and Thursday on top of the original overdraft fee.
The total damage depends on your bank's specific rules. Some banks cap the number of overdraft fees per day (often at three or four), while others do not. Check your account agreement or call your bank to find out their limit.
What happens to your credit score
An overdraft by itself does not show up on your credit report. Your bank does not report overdrafts to the three major credit bureaus—Equifax, Experian, and TransUnion. Your credit score will not drop because you went negative.
However, if your bank sends your account to a collection agency because you owe them money and do not pay, that collection account will appear on your credit report and damage your score. This usually happens only if you owe several hundred dollars and ignore the bank's attempts to collect for months. Most people resolve overdraft situations long before that point.
If your bank closes your account because of repeated overdrafts, that closure may be reported to ChexSystems, a banking history database. Future banks may see this and deny you when you try to open a new account. This is separate from your credit report but can make banking harder.
Opting out of overdraft coverage
You have the legal right to refuse overdraft coverage. When you opt out, transactions that would overdraft your account are straightforward declined instead. You do not get the money, but you also do not get charged a fee. Your debit card will be rejected at the register, or your check will bounce.
To opt out, contact your bank directly—by phone, in person, or through online banking. Some banks make this straightforward; others bury the option. Ask specifically to opt out of overdraft coverage for debit card and ATM transactions. Note that opting out does not affect checks or automatic bill payments; those can still overdraft your account even after you opt out, depending on your bank's policy.
If you opt out and then change your mind, you can opt back in at any time. There is no penalty for switching.
Overdraft protection as an alternative
Overdraft protection links your checking account to another account—usually a savings account at the same bank, or a credit line—so money transfers automatically when you would overdraft. If you have $200 in savings and your checking account would go $50 negative, the bank transfers $50 from savings to checking.
The cost depends on the type of protection. Transfers from your own savings account usually cost nothing or a small flat fee per transfer (often $1 to $3). Transfers from a credit line or line of credit cost interest, calculated daily on the amount borrowed. If you borrow $50 and pay it back in a week, you might pay $0.50 in interest. If you borrow $500 and carry it for a month, you might pay $10 or more.
Overdraft protection prevents the high per-transaction overdraft fees, but it does not prevent you from spending money you do not have. If you use it repeatedly, you are borrowing money and paying interest. It is a safety net, not a solution to overspending.
Recovering from repeated overdrafts
If you have overdrafted multiple times, your bank may close your account. Banks view repeated overdrafts as a sign of financial instability or fraud risk. When a bank closes your account, they do so when ready or after a short notice period. You lose access to your debit card and online banking.
Before that happens, contact your bank and ask about fee reversals. Banks have discretion to reverse one or two overdraft fees per year, especially if you have been a customer for a long time or if the overdraft was caused by a bank error. Explain your situation honestly. You may not get all fees reversed, but you might get some back.
Once you have paid off the overdraft, consider switching to a bank with lower fees or better tools to prevent overdrafts. Some online banks charge no overdraft fees at all; instead, they straightforward decline transactions that would overdraft your account. Others offer overdraft protection linked to savings at no cost. Compare options before you open a new account.
Checking account overdrafts versus credit card overdrafts
A checking account overdraft and a credit card over-limit are different. When you overdraft a checking account, you owe the bank money because you spent more than you had. When you go over your credit card limit, you owe the credit card company interest on the amount over the limit, plus an over-limit fee (if your card allows it).
Checking account overdrafts are reported to ChexSystems if they go unpaid. Credit card over-limits are reported to the credit bureaus and damage your credit score. Credit card interest rates are usually higher than overdraft protection interest rates, but credit card companies report to credit bureaus while banks do not (unless the debt goes to collection).
If you are choosing between the two, neither is ideal. But if you must choose, a checking account overdraft that you pay back quickly costs less and damages your credit less than a credit card over-limit.
Frequently Asked Questions
Can a bank close my account if I overdraft too many times?
Yes. Banks can close accounts for repeated overdrafts, usually after three to five overdrafts in a short period. They may give you notice or close it when ready. Once closed, the bank reports it to ChexSystems, which makes it harder to open a new account elsewhere.
Will my bank reverse an overdraft fee if I ask?
Banks have the authority to reverse fees, and many will reverse one or two per year if you ask politely and have a good history with them. Call and explain your situation. There is no may provide, but asking costs nothing.
What is the difference between a bounced check and an overdraft?
A bounced check is a check that the bank declines to pay because you do not have enough money. An overdraft is when the bank pays the check anyway and your account goes negative. The bank charges a fee either way—a returned check fee if it bounces, an overdraft fee if it clears.
If I opt out of overdraft coverage, will my bills still be paid?
Automatic bill payments and checks may still overdraft your account even after you opt out, depending on your bank. Opting out usually applies only to debit card and ATM transactions. Ask your bank which transactions are covered by your opt-out choice.
How long does it take for an overdraft fee to appear on my account?
Most banks charge overdraft fees within one to three business days of the transaction that caused the overdraft. The fee appears as a separate line item on your statement. Some banks charge the fee when ready; others batch them and charge once per day.